Brookdale Keeps Infection Rate Low and Pivots on Sales, Faces Tough Q2 Covid-19 Battle

Brookdale Senior Living (NYSE: BKD) was making good progress in the beginning of this year — until Covid-19 threw icy cold water on the industry.

As it heads into the second quarter of 2020, the nation’s largest senior living operator now has focused its efforts on supporting its residents and workers while slowing the spread of the pandemic. Brookdale CEO Cindy Baier is heartened by the fact that fewer 1% of the company’s residents across its 741 communities have so far tested positive for Covid-19, though the company did not disclose exactly how many. Brookdale has the ability to serve approximately 65,000 residents in total.

Baier is also encouraged that sales activity seems to be moving in a more normal direction now than a few weeks ago. Meanwhile, the provider is currently striving to test all of its residents and associates for Covid-19, giving it enough visibility to address the pandemic head-on.


But Covid-19 and the resulting lockdowns have also put a strain on Brookdale’s ability to maintain occupancy across the board. Specifically, new resident leads, visits and move-ins tumbled at the outset of the pandemic in March, leading to significant occupancy erosion in the weeks that followed.

All of that complicates the Brentwood, Tennessee-based senior living provider’s plan to hit an 89.5% average occupancy rate for its same-community portfolio and reach 7% annual net operating income (NOI) growth rate by 2024. But Baier said it’s still too early to tell what the future holds in that regard.

“There’s no question that Covid-19 is having a material short term impact,” Baier told Senior Housing News in an interview Wednesday. “It’s premature at this point to talk about the long-term aspects, because there’s a lot of questions about the depth and the duration of the impact of Covid-19.”


Brookdale has been engaged in a years-long turnaround effort, following the troubled acquisition of Emeritus Corp. The provider showed solid momentum in January and February before the pandemic came crashing down on the industry in March, according to RBC Capital Markets Analyst Frank Morgan.

“BKD posted 1Q20 results slightly below our expectations and essentially in line with guidance, reflecting continuation of impressive momentum through January, February, and early March,” Morgan wrote in a note to investors Wednesday. “Followed by a decline in move-ins and occupancy by the end of the quarter, which has persisted through April, exhibiting what has become a consistent theme among facility-based operators in the COVID-19 world.”

Brookdale’s share price fell 1.7% to land at $2.87 by the time the markets closed Wednesday.

Occupancy down and falling

As is the story with the rest of the senior living industry, the Covid-19 pandemic has put a damper on Brookdale’s occupancy rates and led to unexpected short-term costs.

Brookdale’s consolidated senior housing occupancy decreased 220 basis points last month, falling from 82.2% on March 31 to 80% as of April 30. That’s largely due to move-ins, which fell nearly 35% across the provider’s same-community portfolio as the U.S. went into lockdown in March.

Brookdale Senior Living

Independent living move-ins were more affected than those in assisted living or memory care, but length of stay is longer for that product type, meaning that occupancy tends to hold up better in those units, Baier noted. The company must replace about 4.5% of its residents across its entire portfolio every month in order to keep occupancy from declining due to usual attrition, Baier said.

Brookdale expects to see below-normal levels of occupancy and move-ins well into the second quarter, though some of that hinges on how quickly the country is able to return to a semblance of normalcy.

“During May, our occupancy will continue to fall,” Baier said on Wednesday’s earnings call. “We’ll look to see how much of our normal move-in volumes we’re able to get as the economy returns to a little bit more of a normal state.”

Still, Baier thinks that the company’s sales teams are coping better now than they were in March or April. Part of that has to do with the fact that Brookdale redesigned its entire sales process and moved to virtual tours in March to help its salespeople maintain their leads during the pandemic.

“Our sales people are much more optimistic today than they were four or five weeks ago,” Baier said. “Now, I don’t want to say that May move-ins are going to be normal … but I do think that [regarding] the discussion of the sales team, the tenor of that seems to be improving somewhat.”

And at the same time, the provider’s total number of move outs decreased on a year-over-year basis every month from February through April, though the number of residents who moved out of their community due to financial reasons increased in the first quarter of 2020.

The improvements in move-outs “reflects the fact that our residents and families appreciate the strong infection control protocols that we have in our communities,” Baier said.

And while attrition due to death among residents is higher than it is during a mild flu season, fewer Brookdale residents have died during Covid-19 than during an intense or severe flu season, she added.

$10 million in expenses, and rising

Meanwhile, the provider spent $10 million responding to Covid-19 in the first quarter of 2020, with much of that related to the procurement of personal protective equipment (PPE), medical supplies, disposable food service supplies, cleaning and sanitation. Since the outset of the pandemic, Brookdale says it’s ordered 2.7 million N-95 masks, 14.1 million surgical masks, 1.5 million isolation gowns and 600,000 cloth masks. The company also procured 1.9 million ounces of hand sanitizer and 1,448 gallons of yellow peroxide, a cleaning solution.

Labor costs have also risen, as Brookdale provides premium pay in some communities. And the provider’s employees are now spending more time on the clock screening residents and other associates for symptoms of Covid-19.

“While we monitor our AL and memory care residents’ health, we normally don’t do 4 million resident temperature and pulse oximeter checks,” Baier told SHN. “We haven’t historically tested associate temperatures, and we’ve done that three and a half million times.”

And Costs related to Covid-19 are only expected to rise in the second quarter, she said during the earnings call Wednesday.

To offset those expenses, Brookdale has made reductions in its marketing budget and canceled certain events and travel arrangements. The company is also assessing “additional reductions that won’t affect business recovery,” said Brookdale CFO Steve Swain.

Still, Baier feels as though the company’s balance sheet is strong enough to weather the pandemic. The company made moves to preserve its liquidity in Mid-March, including by suspending stock repurchases and delaying or cancelling some capital expenditure (CapEx) projects. At the end of the first quarter of 2020, Brookdale had $500.7 million in cash, cash equivalents and marketable securities on hand.

Regarding discounting or rent concessions, Baier said it’s still too early to make firm commitments either way. And while she said during Wednesday’s earnings call that discounting now would be “shortsighted,” that could change in the future.

“I do think that we are being disciplined about price. That doesn’t mean that we’ll never discount,” Baier told SHN. “But this is really all about quality, and making sure that our residents have appropriate value for the service, and we’re hoping that the Covid-19 incremental costs aren’t something that we have to bear forever.”

Brookdale also has made note that some real estate investment trusts (REITs) are granting rent deferrals to their operating partners, though it has not had any discussions along this line yet.

“When there’s something to announce, we’ll announce it,” Baier said. “But know that we are taking all of our constituencies into consideration.”

More support needed

Baier, like many others in the senior living industry, believes more needs to be done to protect residents and workers. While she is grateful for the federal government’s role in mitigating Covid-19 so far, she believes the fight is still far from over.

“I’m hopeful that the government will see the critical role that senior living plays on the frontline of the Covid-19 battle, and will be willing to provide support for our herculean efforts to support this very vulnerable population,” Baier told SHN.

Specifically, Baier thinks the federal government can help play a critical role in funding testing efforts and helping senior living providers secure PPE. Brookdale already has received government relief in the form of a $29 million Public Health and Social Services Emergency Fund grant to support hospice, home health, and skilled nursing; $85 million through the Medicare Accelerated and Advance Payment Program; and $76 million through the Payroll Tax Deferral Program. And the company continues to seek further government-sponsored financial relief.

Tantamount to the road of recovery is testing, which can give senior living providers the ability to tell sick residents from healthy ones, including those that don’t show symptoms of Covid-19. Brookdale has already begun the effort of testing all of the residents and associates in its communities, though that is a monumental effort that will require some time to complete.

“We’ll start by partnering with the local health departments, and we will have local plans to execute,” Baier told SHN. “As you would imagine, with as many communities we have … it takes a bit of time to get it executed throughout the entire portfolio.”

Brookdale is also looking to fill 4,500 open positions across the country. Included in that count is the provider’s new room service attendant role, which will task associates with delivering food from Brookdale’s dining rooms to residents who are sheltering in place in their rooms.

“We serve more than 2 million meals in-room as a result of Covid-19. Our beautiful dining rooms are closed in many cases,” Baier siad. “And so, that’s put a lot of cost into our business.”

But despite the need for more support and the arrival of new pandemic-related headwinds, Baier believes the company is ready to handle whatever the coming year throws at it.

“Brookdale is and has been a leader in the industry,” Baier said. “And we believe that we will be well-positioned to be a very strong leader coming out of the Covid-19 pandemic.”

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