Brookdale Occupancy Slumps to 76.6% But Company Improves Financial Footing

While Brookdale Senior Living’s (NYSE: BKD) occupancy and revenue have dipped substantially since the Covid-19 pandemic began, several recent moves have helped put it on firmer financial footing.

The Brentwood, Tennessee-based company’s average occupancy rate hit 76.6% at the end of July subsequent to shedding 430 basis points in the second quarter of 2020, sequentially. The national senior housing occupancy rate for the second quarter was 84.9%, according to data from the National Investment Center for Seniors Housing & Care (NIC).

As of the end of July, 85% of Brookdale’s 737 senior living communities were accepting new resident move-ins. While a lower volume of move-ins has dampened the company’s occupancy rate during the pandemic, the total number of move-ins improved each month as the second quarter of 2020 progressed, going from about 65% lower on a year-over-year basis in April to about 35% lower in June.

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The nation’s largest senior living operator also announced it has now completed baseline Covid-19 testing at all of its communities across 44 states. Brookdale also expects to benefit from a master lease restructuring with Chicago-based landlord Ventas (NYSE: VTR) designed to result in an up to $500 million rent reduction, and millions of dollars in federal Covid-19 assistance.

Still, as is the case with many other senior living providers, the pandemic has cast a cloud over the company’s future outlook. As such, there is no clear picture of when operations and finances might begin to normalize, Brookdale CEO Cindy Baier said Tuesday during a second-quarter earnings call with investors and analysts.

“With the recent elevation in the U.S. coronavirus growth rate in the South and Southwest, it’s too early to speak definitively about exactly when our business will return to a new normal,” Baier said. “We made great progress through the second quarter, and we focused on the actions that will help us overcome our short-term challenges and create a business that can capitalize on the opportunities ahead.”

Despite its diminished occupancy levels, recent moves to preserve liquidity and cut costs have put the company on a better financial trajectory for dealing with the pandemic, according to RBC Capital Markets Analyst Frank Morgan.

“Given the cash-flow enhancing provisions and continued focus on balance sheet improvement efforts like the master lease transactions recently negotiated with Ventas, we believe Brookdale should be on good footing to weather remaining Covid headwinds,” Morgan wrote in a note to investors Tuesday.

Brookdale’s share value dropped about 7% to land at $2.92 by the time the markets closed Tuesday.

Cost control

Although Brookdale made progress in dealing with the pandemic in the second quarter of 2020, Covid-19 did take a significant toll on the company’s financial performance.

On a same-community basis, revenue per available room (RevPAR) decreased by 3.5% in the second quarter of 2020 as a result of the provider’s occupancy losses. This was partially offset by its revenue per occupied room (RevPOR), which grew about 2.3% compared with the same quarter last year. Consolidated resident fee revenue fell 6.2% over the second quarter of 2019.

Baier believes Brookdale should continue to sell “quality services at a fair price” and therefore hold firm on pricing and discounting. But she acknowledged that there is some “softness” in independent living pricing, as it is more of a hospitality-centric model than assisted living or memory care.

“If you think about moving in the midst of a pandemic, do you want to move into the high quality operator or the low cost solution?” Baier said. “We’ll continue to be nimble on a community-by-community basis and respond to local market conditions, but we always know that rate is a stronger driver to profitability, which is why we protect the rate.”

Since the pandemic began, Brookdale estimates it has incurred $71 million in Covid-19 expenses, with about 60% going toward procurement of personal protective equipment (PPE) and medical supplies. However, Brookdale touted an increased supply of PPE in the second quarter 2020, which leaders expect to last though multiple months ahead.

Brookdale also missed out on an estimated $69 million in resident fee revenue since the Covid-19 pandemic began. But the company is bridging the gap by implementing some cost control measures, and receiving millions of dollars in federal aid.

The provider trimmed its general and administrative expenses by 5.1% in the second quarter of 2020, and its facility operating expense decreased by $18.6 million, or 3.3%, in the second quarter of 2020, excluding Covid-19-related costs.

“Between the first quarter and the second quarter, our non-Covid-related expenses did drop around $24 million,” said Brookdale CFO Steve Swain. “And we did that by flexing labor, supplies, marketing and maintenance.”

Looking ahead to future quarters, Baier expects costs related to Covid-19 to come down “markedly.”

Brookdale has delayed or cancelled elective capital expenditure (CapEx) projects adding up to about $40 million since the first quarter of this year, and put hiring on hold for most of its open corporate positions.

The provider has received government relief in various forms since the outset of the pandemic. That includes $33.5 million from the CARES Act’s provider relief fund for skilled nursing, hospice and home-based care; $1 million in state funding; and $85 million through the Medicare Accelerated and Advance Payment Program, which Brookdale must repay in the second and third quarters of this year.

Brookdale estimates further relief totaling up to $60 million through the provider relief fund for skilled nursing, and through the CARES Act’s employee retention payroll tax credit. The company also expects to receive relief in the form of an estimated $4 million through Medicare’s ongoing 2% sequestration suspension, and an estimated $65 million through the payroll tax deferral program, which Brookdale plans to repay in 2021 and 2022.

Testing, engagement and innovation

During Tuesday’s call, Baier highlighted three recent successes as helping to protect the health and wellbeing of its residents and associates.

On the Covid-19 testing front, Brookdale administered roughly 100,000 Covid-19 tests this year so far, according to Baier. As of the end of July, less than 1% of the company’s total resident base tested positive for Covid-19. Brookdale has the ability to serve about 65,000 residents in total.

Brookdale discovered many residents who test positive carry the disease without showing symptoms. This is similar to what other companies, such as Bloomfield, New Jersey-based Juniper Communities, have learned after fully testing their resident populations.

“Many pass through the full exposure period without becoming symptomatic,” Baier said. “Identifying individuals who are Covid-19-positive made it possible to implement our quarantine protocols for those infected residents and to restrict Covid-19-positive associates from working in our communities”

Baier also touted Brookdale’s success in implementing window visits, car parades, and technology to keep residents and their families engaged and connected, even as its communities have restricted or barred visitors. More recently, Brookdale has begun allowing visitors at some of its communities where local or state guidelines allow, and where testing shows no current Covid-19 cases.

And on the innovation front, Brookdale is making strides to stay ahead of the game. That includes implementing an over-the-counter hygiene product for residents in its memory care communities, where infection control is more challenging.

“Our associates can apply this lotion-like product to the memory care residents’ face and hands several times a day,” Baier said. “We believe this hypoallergenic product supports the anti-microbial barrier of the skin.”

While Baier was careful to note that timing related to the pandemic is uncertain, she envisioned a time one or two years from now when Brookdale could tout its safety measures and infection control experience to stand apart with prospective residents.

“Given our size and scale, we’ve got more nurses than anyone, and we have been very aggressive at helping our residents manage their health care conditions,” Baier said. “And that’s something that I think will be a differentiator for the long term.”

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