Brookdale Eyes Health System Opportunities as Assisted Living Turns a Corner

With a two-year of restructuring its portfolio and operations almost complete, Brookdale Senior Living (NYSE: BKD) believes it now has the foundation in place to generate consistent and sustained growth. In fact, the company’s 2020 guidance anticipates adjusted EBITDA to grow on a year-over-year basis for the first time since the Emeritus merger in 2015.

Forging closer ties to health systems is one notable opportunity that Brookdale will now move to seize, CEO Cindy Baier told Senior Housing News.

Heading into 2020, the Brentwood, Tennessee-based operator is betting that its senior housing portfolio makeup and scale is positioned to capitalize on expected tailwinds over the next several years, particularly with seniors in need of assisted living. Recent executive hires, notably a new head of senior living, are expected to bear fruit in the form of deeper relationships with payers and providers, as well as attracting new residents more quickly.


But Brookdale still must contend with pressures stemming from a historically tough labor environment and is working to control costs, reduce turnover and increase community income. Notably, the company will be dealing with a shortage of nurses over the next several years, Baier told SHN.

The operator’s “local focus” strategy is showing results. Over 3,000 former Brookdale associates returned to the company in 2019. Additionally, the company was able to retain over 70% of its executive directors and health and wellness directors.

This will have a downstream effect in retaining front-line workers in the future.


“[Executive] leadership is critical. It lets associates know that they are part of something bigger than just themselves,” Baier said.

Brookdale’s portfolio consisted of 763 communities in 45 states as of December 31, 2019. This was down from more than 1,000 communities after the merger with Emeritus, which led to a troubled integration that has dogged the company for years. The operator spent last year restructuring its assets so that it owned the majority of the portfolio. This was accomplished through major deals such as selling its 51% stake in a portfolio of 13 CCRCs that were jointly owned by Healthpeak Properties (NYSE: PEAK). Brookdale also reduced its share of managed communities by half last year, through operator transitions where existing management agreements did not fit its business model.

As a result, Brookdale’s portfolio is 14% smaller entering 2020 and the operator owns 60% of its consolidated portfolio as of February 1, Baier said. The portfolio restructuring and lease exits should improve the company’s free cash flow, which was better than expected to close out 2019.

Topline growth continues to improve

Brookdale’s senior housing portfolio posted an 84.5% occupancy rate for the fourth quarter of 2019, a 10 basis point improvement over the previous year. For the full year, occupancy dropped 40 basis points to 83.9%, but has improved sequentially since the second quarter of 2019.

Brookdale’s assisted living and memory care segment — the largest part of its assets — paced that performance.

The segment ended the fourth quarter with an 83.6% occupancy rate and 82.6% for the full year. The Q4 occupancy is a 90 basis point improvement year-over-year and beats industry benchmarks as represented by fourth quarter numbers reported by the National Investment Center for Seniors Housing & Care (NIC).

Brookdale’s Q4 facility operating expenses increased 3.4% over the previous year to $429.3 million, but this also marked an 11.3% sequential decline. This was attributed to improved cost controlling measures, especially regarding overtime labor.

All told, Brookdale reported a net loss of $91.4 million in the fourth quarter, a 169.5% drop from the previous year, most of it attributed to dispositions.

In spite of the losses, and the fact that the company missed consensus estimates for earnings per share and revenue, several analysts believe that Brookdale is moving in the right direction. Investors agreed, as Brookdale stock soared over 21% in trading Wednesday, to $8.31 per share.

The company’s adjusted EBITDA of $401 million was within the operator’s guidance range, while free cash flow of minus-$76.4 million was better than expected, Stifel Nicolaus Analyst Tao Qiu told SHN.

As the first quarter of 2020 comes to a close, investors and analysts are willing to see if Brookdale can capitalize on its five-year growth plan, which was announced during the company’s Q3 2019 earnings call last October.

“Investors are more focused on Brookdale’s ability to execute on its turnaround strategy and consistently build occupancy and drive rent growth over the next two to three years, rather than nitpicking relatively small discrepancies in revenue or EBITDA on a quarterly basis. Especially given the significant portfolio changes Brookdale has made over the last few quarters that add incremental moving parts to the forecasting process,” Jefferies Vice President, Healthcare Equity Research Jason Plagman told SHN.

Betting on assisted living

Brookdale’s senior housing makeup puts assisted living as the launch point for sustained growth in the company’s five-year plan.

Its targets include an average same-community occupancy of 89.5% by 2024, with a 7% net operating income (NOI) compound annual growth rate through that period.

NIC’s Q4 2019 occupancy report suggests that assisted living has reached an inflection point where demand will gradually exceed supply. Full-year net absorption for assisted living was the strongest since NIC began tracking data, Chief Economist Beth Burnham Mace told SHN last month. The supply pipeline is shrinking, as measured by new construction starts and units under construction. Barring any drastic change to macro-economic conditions, demand for assisted living is expected to gain momentum. Brookdale’s AL-heavy portfolio is primed to capitalize on this demand and expects this to continue in 2020 and beyond.

“The [baby boomer demographic] accounts for 9% of our total resident population, and 15% of our move-ins. This is a great opportunity, over time,” Baier said during an earnings call Wednesday.

Brookdale is also taking steps to tie its assisted living communities to the health care continuum.

Last month, the operator hired Cindy Kent as executive vice president and president of its senior housing arm. Before joining Brookdale, Kent spent four years at 3M, first as president and general manager of its drug delivery systems division and later as president and general manager of its infection prevention division. She also held senior leadership roles at medical tech company Medtronic from 2007 to 2013.

Brookdale believes that Kent’s experience developing working relationships with payers, hospitals and physician groups will prove invaluable as it looks to accelerate growth, attract new residents more quickly and have a positive impact on quality of life.

“With the changes happening in health care moving from fee-based services to pay for performance, there are better opportunities to partner with health systems to make assisted living a part of the care continuum. Having someone [like Kent] who worked in other aspects of the spectrum is important,” Baier told SHN.

Independent living accounts for a smaller percentage of Brookdale’s portfolio, but it will still be an essential part of the growth strategy, Baier told SHN.

The segment faced competition in Q4 2019, with aggressive discounting from some competitors in certain markets. But Brookdale was thoughtful on rate concessions, and posted an 88.7% occupancy rate in the fourth quarter and an 89.2% rate for the year. Moving forward, Baier would like to maintain IL occupancy in the 90% range.

Another area of growth identified by Brookdale is its home health services segment, which grew 1.1% in Q4 and 2.4% for the year. Brookdale projects 3% growth in this segment in 2020, but that growth will likely happen in the second half of the year.

The new Patient-Driven Groupings Model (PDGM) took effect on January 1. The biggest home health reimbursement change in 20 years, PDGM is expected to force many small- and mid-sized home health care agencies out of business.

Brookdale expects to see some early noise in its home health business, while the company adapts to PDGM’s intricacies. For now, Baier would not say if any cuts to service, or sale of the arm, are forthcoming.

“As with any service, we make sure we match our workforce to the patients that we serve,” she said.

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