With Occupancy at 74%, Brookdale Execs Focus on Rate Discipline, Long-Term Demand

Leaders with Brookdale Senior Living (NYSE: BKD) are touting recent moves to improve operational and financial footing, and are keeping a long-term focus as the company’s occupancy rate has continued to slump amid ongoing Covid-19 pressure.

The Brentwood, Tennessee-based company is the largest senior living operator in the nation, with about 726 communities. Brookdale is heavily concentrated in Covid-19 hotspots, such as Florida, Texas and California, and that contributed to same-community weighted average occupancy falling from 83% in March to 74% as of October.

The average senior housing occupancy rate across the largest U.S. markets was 82.1% in Q3 2020, according to National Investment Center for Seniors Housing & Care (NIC) data.


Brookdale executives believe that occupancy loss will moderate in the final quarter of the year, and on Thursday’s earnings call, they pointed to three signs of an improving business outlook.

For one, the company is seeing a higher volume of calls and digital inquiries, and its visit-to-move-in rate is increasing. Additionally, most of Brookdale’s communities are also now reopened open to visitation, events and move-ins. The company also made recent moves to improve its financial footing and reduce ongoing rent payments, and has worked to preserve resident rates in order to maintain revenue.

“We are playing a game to maximize our financial flexibility in the short-term and prepare to win in the long term,” President and CEO Cindy Baier said.


Some analysts who cover the publicly traded company agreed that Brookdale has made progress overcoming its recent challenges.

“The company appears to be on incrementally better footing, as evidenced by increasing move-ins and less severe occupancy degradation over the course of the quarter,” wrote RBC Capital Markets analyst Frank Morgan in a Nov. 4 note to investors. “While Covid recovery for senior living continues to be a longer slog versus the other providers in our coverage, Brookdale management has kept to strategy and put the pieces in place to execute as demand recovers.”

Still, Brookdale faces a long road ahead with respect to its recovery from Covid-19 pressures, according to Brian Tanquilut, equity analyst at Jefferies.

“While we give management credit for exercising pricing and operating cost discipline, our concern is that Brookdale’s earnings power will remain relatively soft through 2021 as the recovery in occupancy trends will likely be gradual as Covid hotspots continue to emerge across the country,” Tanquilut wrote. “We find optimism in the upcoming release of a Covid vaccine, especially since senior facilities will have priority access to immunizations, but don’t expect full occupancy recovery till 2022.”

The company missed consensus estimates for quarterly revenue and earnings, and Brookdale’s share price contracted 11% Thursday to rest at $2.75 by the time the markets closed.

Operational progress

Although Brookdale saw its fair share of challenges in the third quarter of 2020, company leaders emphasized a few positive metrics.

For one, move-ins seem to be trending in the right direction, as move-ins for the third quarter of 2020 improved 38% when compared to the previous quarter’s totals. Brookdale also reported that the year-over-year decrease in monthly move-ins in its same-community portfolio went from 64.2% in April to 22.9% in September.

The provider is also making progress in its sales and marketing. Brookdale received about 14,000 digital inquiries from prospective residents and their families in September — and that is a company record, according to Baier. The operator also reported its highest visit-to-move-in ratio since 2015.

Brookdale has also made a good deal of progress reopening its communities, and this seems to have paid off in resuming the flow of new residents. At communities with fewer Covid-19 restrictions, move-in volumes were about 22% higher than those with more restrictions, Baier said. As of Oct. 31, 95% of Brookdale’s communities were accepting move-ins.

Regarding the road ahead, Brookdale believes its occupancy losses will continue through the end of the year, but at a more moderate pace, according to Brookdale CFO Steve Swain.

“It’s important to keep in mind that some of the key drivers for occupancy and recovery, as 95% of our communities are open and accepting residents,” Swain said. “The low infection rates that we currently have in our communities is a certainly a plus.”

All the while, Brookdale has worked to preserve revenue by maintaining resident rates throughout the pandemic. Revenue per occupied room (RevPOR) grew 60 basis points in the third quarter of 2020, and represented a 3.3% gain over the third quarter of 2019. Brookdale’s leaders are focused on holding the line on rate despite increased concessions being offered by competitors.

“It’s really not just about occupancy. It’s about getting the most revenue from your available rooms and maximizing [revenue per available room],” Baier said. “Balancing occupancy and rate is always something that we’re going to to accelerate our recovery.”

The prospect of a Covid-19 vaccine — and the fact that the senior living industry is prioritized to receive it when it’s available — also bodes well for Brookdale and the industry

“I think the vaccine is an important fuel for our recovery,” Baier said.

The federal government has also aided the provider by sending it 42,000 rapid-point Covid-19 anigent tests, and providing it with $37 million in grants during the second and third quarters of 2020. Less than 1% of Brookdale’s residents have had positive Covid-19 test results.

Still, the company estimates that it has missed out on estimated lost revenue of $161 million, with an additional $95 million in costs to mitigate the Covid-19 pandemic since March.

Firmer financial ground

Brookdale executives also believe the company is buoyed by recent moves to strengthen its financial position.

The operator in July announced it revised its master lease agreement with landlord Ventas (NYSE: VTR), giving it up to $500 million in rent reductions over the next five years.

“This was the most significant negotiated improvement to a lease in our history,” Baier said.

There may also be changs afoot with one of its other landlords — Denver-based Healthpeak (NYSE: PEAK) — which announced this week it seeks to offload most or all of its triple-net and senior housing operating portfolio (SHOP) segments. Brookdale said it’s focused on finding “win-win” transactions and lease restructurings with its ownership groups.

“Healthpeak is an important partner for Brookdale, and we are grateful for their support,” Baeir said. “We do lease a number of communities from them, and we expect that, even if they transition the properties, we would have a strong relationship with the new owner of the properties, and importantly, continue to receive the CapEx funding that Healthpeak committed to under the lease.”

Brookdale also in August refinanced the assets securing its credit facility with non-recourse, long term mortgages. A month later, the company replaced virtually all of its remaining 2020 and 2021 maturities with new 10-year debt. Baier added that Brookdale has a strong liquidity position, with $500 million of cash and marketable securities on hand as of the end of the third quarter.

“I think the financings are good evidence of strong financial and operating actions that Brookdale has decisively taken throughout 2020, and during this pandemic,” Baier said.

In addition to its senior living business, Brookdale is a major national provider of home health and hospice services. Baier in the past has spoken of her commitment to the hospice space in particular, but home health has taken a hit due to a new Medicare payment framework, as well as lack of patients as Covid-19 has constricted elective surgeries. This business segment logged a 15% revenue shortfall in Q3, Tanquilut noted.

Should the need arise, selling this portion of the business is another option that Brookdale can exercise.

“Brookdale can monetize its health care services (home nursing/hospice) business, if needed, especially given high public company valuations in that space and the continued underperformance and drag from that asset,” Tanquilut wrote.

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