Brookdale Senior Living’s (NYSE: BKD) portfolio restructuring may be in the late innings, but the game is not over yet.
The stock price for the Brentwood, Tennessee-based senior housing owner and operator slumped over 11% in trading Monday after RBC Capital Markets analyst Frank Morgan issued further guidance. Morgan his target price for Brookdale stock from $9 to $8 despite “tangible results” from its restructuring efforts, and pushed back Brookdale’s performance improvement horizon into 2020.
Morgan previously wrote that Brookdale would not see improvement in its performance until fiscal year 2019.
Brookdale posted an adjusted EBITDA of $126.4 million, nearly $10 million below RBC’s projections. That included a $1.7 million hit from Hurricane Florence. This reflects occupancy pressure in a senior housing market dealing with oversupply and rising labor costs, Morgan wrote. Brookdale’s consolidated revenue fell to $1.12 billion in Q3, a 4.9% decline year over year, as a result of real estate dispositions over the past 12 months.
Morgan pushed back Brookdale’s horizon specifically because Brookdale will be dealing with these operational challenges over the next year.
Morgan agreed with Brookdale CEO Cindy Baier’s assessment that the company’s turnaround would hinge on improving operations, and suggested the foundation is being laid. He cited the company’s noticeable investments in local operations and, although Baier cautioned that its occupancy struggles would continue into next year, Brookdale’s 1.3% year-over-year increase in same-store revenue per operating room (RevPOR) was a sign it would not need to rely on future rent concessions as a long-term strategy to increase occupancy.
Brookdale’s investment in local operations is also a positive sign. The retention rate among community executives is over 70%, Morgan noted. Recent organizational changes also helped drive more high-quality leads were up 7% in Q3 year-over-year, and first visits saw similar improvements.
Brookdale has an opportunity to improve cash flow by $100 million, by improving occupancy, Baier said two weeks ago at the Stephens NY Investment Conference in New York City.
Brookdale stock ended Monday trading at $7.67/share.
Written by Chuck Sudo