Brookdale Senior Living (NYSE: BKD) is carrying out its “winning locally” turnaround strategy by first sending its top brass to work at some of its communities.
In June, 20 members of the Brentwood, Tennessee-based senior living provider’s senior leadership team prepared and served meals, cleaned rooms, participated in sales calls and worked overnight shifts at Brookdale communities across the country. That included Brookdale President and CEO Cindy Baier, who recently worked at communities located in Wilsonville and Portland, Oregon.
“We wanted to perform the job, or we wanted to shadow the person performing the job, so that we could really understand what the challenges were that the community associates were facing, improve the tools that our associates have to work with, and also to make sure that we’re providing the best support possible,” Baier told Senior Housing News.
Meeting with associates and learning more about what they do on a day-to-day basis is part of Brookdale’s ongoing plans to give local leaders more resources and autonomy.
“Visiting communities gives us a very good perspective of how each community is unique, and by visiting a number of individual communities, you can get a better perspective of the things where you can capitalize on scale, and where are the points where you really need local autonomy,” Baier said. “And I think it just helps us fine-tune that mix.”
The local visits were so enlightening that Brookdale plans to put 30 more of its leaders through the same kind of “immersion experience” next week, Baier added.
Still, there’s much more work to be done on the turnaround efforts, as evidenced by the company’s second-quarter earnings.
Brookdale on Tuesday reported a net loss of $165.5 million for the second quarter of 2018, which is steeper than its net loss of $46.3 million for the same quarter last year. Those totals included a $146.5 million loss related to recent lease restructuring and termination transactions completed with landlords Ventas (NYSE: VTR) and Welltower (NYSE: WELL). As of June 30, Brookdale’s senior housing portfolio included 988 communities in 46 states.
Operating income for the provider’s senior housing portfolio was $258.7 million for the second quarter of 2018, a 7.1% decrease from the company’s totals in the second quarter of 2017. That decrease was mostly due to an increase in same-community operating expenses, which itself was driven by an increase in labor expenses.
Brookdale also logged an average unit occupancy of 84.3%, a decrease of 50 basis points from the first quarter of 2018 and a 100 basis point decrease from the same period last year. But the provider’s occupancy improved in June and July, giving Baier confidence that Brookdale is on the right trajectory with regard to filling beds.
“Compared to the NIC data, I think we outperformed the industry on an adjusted basis, when you take into consideration that we have more assisted living in our portfolio than the rest of the industry,” Baier said during Tuesday’s earnings call.
Meanwhile, the company’s same-community revenue per occupied unit (RevPOR) grew 0.9% when compared with the second quarter of 2017.
‘Win locally’
There are three main tenets of Brookdale’s plan to improve its operations, which Baier has repeatedly laid out on earnings calls and presentations this year. Those tenets are: attracting and retaining top-flight associates; earning resident and family trust through exceptional care; and driving long-term shareholder returns.
Much of that progress will involve decision makers who are closer to customers rather than in the C-suite. For example, executive directors and other community-level leaders now have more freedom with respect to who they hire and how much they pay associates. Brookdale has also made strides to rebalance its marketing efforts in terms of how much is invested nationally versus locally.
And while 2018 is still shaping up to be a bumpy year for some major senior living providers, those moves have put Brookdale on the right track for long-term success, Baier told SHN.
“We have to win locally. We have to prioritize our associates and building the best team in the industry. We have to win by building connections with residents,” she said. “This experience [visiting Brookdale communities] gave us the opportunity to see why the strategy is right, but also to see how we can be more help to our communities.”
While the strategy is still in its early stages, there are a few signs it is coming to fruition. By June, the company had completed a vertical realignment of its sales organization, a move that put the provider’s district-level sales associates under the guidance of sales leadership, and implemented a dotted line for guidance from sales directors for community-level sales associates. Brookdale also extended the hours of operation at its contact center, which now runs seven days a week.
Combined with the push to empower community-level leaders, the changes help make Brookdale more agile in its operations, according to Baier.
“Early results show that our speed-to-lead is having a positive impact in connecting us with more prospects,” Baier said on Tuesday’s earnings call. “The contact center is able to drive more high-quality leads, sales directors are more focused on converting leads to move-ins, and executive directors have the ability to make decisions more quickly for their residents and associates.”
While those changes appear to have boosted sales leads and first visits from prospective residents, move-ins have lagged for the quarter. But Brookedale expects to see more move-ins in the third quarter of this year, Baier said.
“I will also say that there is a very competitive environment with lots of new deliveries in the second quarter, and we think that is reflected in our results,” Baier added on the earnings call. “Moving forward, our focus is going to be making sure we’ve got the right sales directors in our communities, [and] making sure that they are getting the right coaching and mentoring.”
Early indicators
It’s no secret that Brookdale’s turnaround efforts are viewed with a healthy dose of caution from some analysts and investors within the senior living industry. Baier herself recently remarked that Brookdale was still only in the “first inning” of its recovery efforts. And there could be more turbulence ahead, as the company still plans to sell more senior housing assets while it seeks to ride out choppy industrywide headwinds.
Still, the company’s latest earnings report could be an early sign of progress on the turnaround effort, according to Stephens Analyst Dana Hambly, who set Brookdale’s target share price at $12.
“Brookdale’s 2Q results were generally better than expectations, which, to be fair, are quite low and still reflect a challenging operating environment,” Hambly wrote in an Aug. 7 note to investors. “We view this as a positive report with turnaround initiatives taking hold and continue to believe shares are under-valued.”
Brookdale’s share prices fell 3.18% to $8.22 by the time the market closed Tuesday.
Written by Tim Regan
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