Brookdale Highlights the Keys to Its Q1 Performance

On the heels of a strong Q1 2019 performance attributed to an improved sales cycle and growth, Brookdale Senior Living (NYSE: BKD) highlighted some of its operational outcomes Tuesday for a conference of investors.

During a presentation at the RBC Capital Markets Global Healthcare Conference in New York City, Brookdale CEO Cindy Baier shared her insights into the drivers behind the Brentwood, Tennessee-based senior housing owner and operator’s Q1 performance, as well as some possible additional avenues for future growth.

Keeping a close eye on construction starts

Brookdale, and the senior housing industry as a whole, has been dealing with excess supply in the marketplace for at least four years, spurred by new construction during the post-recession real estate boom. While new starts have gradually declined over the past two years, the construction pipeline in Brookdale’s markets remains stubbornly high, Baier said.


Brookdale’s competitive pipeline — which Baier considers to be all in-progress communities within a 20-minute drive from a Brookdale property — has declined 10% since 2017. The company will still be impacted by new construction throughout 2019, though the downward trend of declining starts bodes well for 2020 and beyond, she added.

Existing residents driving rate growth

Brookdale’s 3.7% growth in revenue per occupied room (RevPOR) from Q4 2018 to Q1 2019 was largely driven by rate increases for its existing residents. Assisted living and memory care accounted for the lion’s share of those rate increases, as most residents receive their increases on January 1, Baier said.

“What you do is you try to pass on the costs that you’ve built into your business and you try to improve your positioning,” she said. “Most of that took place in January.”

Rate increases in independent living, on the other hand, are spread throughout the year on move-in anniversary dates.


Existing residents want value for the services they receive, and they are comparing notes with new move-ins to determine that value. Each new resident gets a rate customized on a rent and care basis, Baier said.

She noted that Brookdale put a lot of effort into retaining residents in the last year. The result of that work was a shift from a negative mark to market in Q3 2018 to a positive mark to market the following two quarters.

“We are having people moving into our communities who actually pay more than the departing resident,” Baier said. “That’s something that’s truly impressive in a difficult supply environment.”

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Protecting the rate

As occupancy rates in new communities stabilize around 85% after opening, operators often begin offering discounts to fill the vacancies.

Instead of cutting rates across the board, Brookdale focuses on retaining its staff and residents, as well as ensuring its communities are price-competitive with regard to the services being offered, Baier said. In isolated instances where discounting is required, Brookdale makes it specific to the community undergoing leaseup.

“We sell very hard on the care and our view is to protect the rate as much as possible,” she said. “We do that everywhere where there is a reasonable competitive environment.”

Sticking to the game plan

Brookdale’s portfolio is 25% smaller than it was five years ago, Baier said. As the company’s turnaround strategy comes to a close, the company plans to be strategic in its future acquisitions while not losing focus on the strategy’s foundation: improving operations.

“We’ve got the opportunity to drive about five points of occupancy and that is a $100 million opportunity for adjusted EBITDA and adjusted free cash flow,” Baier said.

To achieve that, Baier wants Brookdale’s core portfolio to operate at maximum levels, while adding new revenue-generating service lines. The company is exploring increasing the number of hospice and home health options for its residents. These require very low capital investment, solid cash flow streams and healthy margins.

“Now it’s time to reap the benefits as baby boomers enter our target audience, and as demand continues to grow with a better supply environment,” she said.

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