Brookdale Senior Living (NYSE: BKD) is making progress on its ongoing turnaround strategy, with promising signs emerging in its sales cycle. Investors reacted accordingly, with the company’s shares trading up nearly 10% on Tuesday following the Q1 2019 earnings release.
Still, industry headwinds are persisting and Brookdale leaders were cautious in setting expectations for the remainder of the year.
The Brentwood, Tennessee-based senior living provider has reported sequential improvement in its community leads, first visits and move-ins, CEO Cindy Baier said on the company’s first-quarter earnings call Tuesday.
The company was also able to increase rates in the quarter in order to offset seasonal occupancy declines. While same-community occupancy landed at 84% in the first quarter of 2019, consolidated revenue per occupied unit (RevPOR) for the quarter increased 3.1% to rest at $4,939.
Brookdale’s facility operating expenses, meanwhile, increased sequentially by $20 million, or 3.6%, mostly related to an increase in wage rates, increased use of overtime and contract labor and an increased investment in worker salaries and benefits.
“We intentionally increased rates at levels higher than prior years to mitigate lower occupancy and higher labor investment,” Baier said on Tuesday’s call. “When we look at rate and care pricing upon move-in, our rates are better than our competitors, and move-ins improved sequentially by nearly 3%.”
The company’s progress this year has been better than expected, according to Stifel analyst Chad Vanacore. But there are questions about whether the company can keep up the pace in the months ahead.
“Although 1Q results were much better than expected, management cautions that occupancy in 2Q could be weaker sequentially and operating as well as G&A expenses would be higher,” Vanacore wrote in a note to investors.
Dana Hambly, an analyst with Stephens, also said the quarter was better than expected for Brookdale.
“The occupancy decline was a bit worse than expected, but that was offset by solid rate growth,” Hambly told Senior Housing News. “Good to see the price discipline even if it means sacrificing some occupancy.”
Brookdale’s sales cycle improvements should aid it during the remaining quarters of 2019, according to Jason Plagman, an analyst with Jefferies.
“BKD’s leading sales indicators (leads, move-ins, initial visits) showed Q/Q improvement in Q1 following disappointing Q4 activity levels,” Plagman wrote in a note to investors.
Brookdale’s share value gained 9.58% and ended up at $7.09 by the time the markets closed Tuesday.
Brookdale has focused on turning around its struggling operations since Baier took the CEO reins in 2018. Baier’s initial strategy to help the company pivot back to operational success called for short-term pain in order to realize long-term gain.
Central to the company’s ongoing turnaround strategy thus far has been a commitment to overhaul the way its sales community process works. Already, the company has increased the retention rate for its sales professionals — a promising sign for the improvement of Brookdale’s sales cycle, Baier said.
“Improving our sales cycle is one of our top priorities, and we are pleased with the sequential improvement in leads, first visits and move-ins,” she noted. “Compared to a year ago, leads were softer from our aggregators, and our fourth-quarter sales retention rates impacted our move-ins.”
To see its sales cycle improvements through, Brookdale announced it hired Rick Wigginton, a former senior vice president of sales and marketing with Holiday Retirement. Wigginton will serve as a senior vice president of sales when he joins Brookdale at the end of May.
The provider also named two more new hires during its earnings call Tuesday: Diane Johnson May, a former human resources leader from Kraft who is set to take the role of executive vice president of HR; and Anna-Gene O’Neal, the former CEO of Alive Hospice who will join Brookdale as a vice president of hospice.
“We are bringing in high-quality leaders with strong industry expertise to fill key positions, so that we can improve on our execution and build on the areas where we are already successful,” Baier said.
Another part of Brookdale’s turnaround strategy is anchored in shrinking its overall portfolio and re-balancing it from leased properties to more owned assets.
As of March 31, 2019, Brookdale’s senior housing portfolio included 844 communities, down significantly from the 1,010 properties it had in the summer of 2018. In the first quarter of this year, the company sold six communities for $29.5 million, terminated the lease on one community and transitioned 41 other managed communities to new operators.
“We executed on moving previously identified communities to new operators,” said Steve Swain, executive vice president and CFO for Brookdale. “On average, we transitioned one community every other day.”
Brookdale expects it will terminate more management arrangements over the next year, including interim management arrangements on formerly leased or owned communities and management arrangements on former ventures in which it has sold its interest.
Looking ahead, Baier cautioned that many of the industry pressures which have buffeted Brookdale’s operations will persist for now. But there is perhaps good news on the horizon, especially if absorption exceeds new supply later this year.
“We do expect that the economic conditions will get better, but I do want to remind you that we are impacted by new competition for 12 months after a new competitor opens,” Baier said. “So, the deliveries that hit us during 2018 and the new deliveries that we see in 2019 will be with us for 12 months.”
Historically, seasonality has dictated that Brookdale’s occupancy sags in the second quarter of the year, with rates then turning positive by June or July. But there is still some uncertainty surrounding whether that trend might play out the same way this year.
“What I’m not sure about is, we had a longer and later flu season this year,” Baier said. “While we were happy that our death rate was down, year-over-year, I do think the flu could have some impact on Q2.”