‘Off to a Great Start’: Brookdale CEO Baier Sees Momentum After Q2 Occupancy Gains, HCA Sale

After a quarter of occupancy gains and the recent sale of the majority of its home health and hospice service line, leaders with Brookdale Senior Living (NYSE: BKD) believe the company is gaining momentum in its recovery.

While that doesn’t mean the organization has emerged from its Covid-era challenges — staffing remains a big pressure on near-term margins, for example — the positive momentum gives CEO Cindy Baier confidence that the Brentwood, Tennessee-based senior living operator is on the right track as it heads into a historically strong period for occupancy growth.

“We just recently reflected five consecutive months of occupancy growth, and … we saw almost as much growth in the month of July as we did during the entire second quarter,” Baier told Senior Housing News in an interview Friday. “This is exciting because we’re in our historically highest-growth quarter and we’re off to a great start.”

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Brookdale also on July 1 officially completed its deal to sell an 80% stake in its health services business line to Nashville-based health system HCA Healthcare (NYSE: HCA) for about $306 million in net proceeds, significantly strengthening the company’s liquidity.

Overall, the latest results are an encouraging sign for Brookdale, according to RBC Capital Markets Analyst Frank Morgan.

“Should we hit another Covid spike, enhanced liquidity and more manageable debt maturities should allow the company to more comfortably ride out the short-term to what we believe will inevitably be a cyclical industry recovery,” Morgan wrote in an Aug. 5 note to investors.

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Barclay analysts Steve Valiquette and Eric Glynn struck a similar tone.

“All told, we are encouraged to see five consecutive months of senior housing occupancy recovery, with a margin profile on the occupancy gains that prompt us to maintain our 2021-2023 adjusted EBITDA estimates,” their Aug. 6 note read.

Brookdale posted a net loss of $83.6 million for the second quarter of 2021, which was lower than the $118.4 million net loss the company saw during the same time last year. Brookdale’s share value lost more than 4% to land at $7 by the time financial markets closed Friday.

Pandemic progress

Baier outlined three “pillars” that are key to the company’s pandemic recovery: vaccinating residents and staff, implementing a “sales transformation” and better capitalizing the higher concentration of assisted living and memory care communities in its portfolio.

Brookdale has vaccinated 93% of its residents, and the company recently made getting vaccinated a condition of employment for its associates, except in states which prohibit doing so, such as Oregon.

Brookdale had initially not set a mandate for vaccinations while some other operators did earlier this year. But the company’s leaders have new urgency to do so with the rapid circulation of the delta coronavirus variant.

“With the spread of a delta variant, it’s really time to take the next step and to require our associates to get vaccinated,” Baier added during Friday’s earnings call.

Another piece of the company’s recovery plan are its sales efforts. Brookdale has worked to refocus its sales teams’ attention on local outreach, and the company this year “strategically and opportunistically allocated marketing dollars to particular areas,” Baier said, adding that the efforts have paid off in the form of increased leads and move-ins in the second quarter.

In particular, Brookdale’s assisted living memory care communities saw robust demand in the pandemic recovery period, leading to a “phenomenal” performance in the second quarter, she also noted. Those two product types make up about 70% of the company’s current portfolio.

Brookdale’s assisted living and memory care segment occupancy grew by 110 basis points in the second quarter of 2021, resting at 69.5%; meanwhile, the operator’s independent living occupancy was relatively flat for the quarter, sequentially, ending up at 73.5%.

Given the strength of its assisted living and memory care segment and the relative softness of independent living, Brookdale’s leaders are aiming to capitalize on the company’s concentration of communities offering higher-acuity services, Baier explained.

Brookdale’s leaders have also stressed the importance of maintaining community rates during the pandemic recovery, which is prompting some of the company’s competitors to engage in “just about everything that you can imagine” to gain occupancy in the short-term.

“With as many competitors as we have, if you can think of it, it’s happening somewhere,” Baier told SHN.

Brookdale’s revenue per occupied unit (RevPOR) grew 4.2%, year-over-year, but was flat on a sequential, same-community basis as the company employed some discounts in certain competitive markets.

In particular, staying disciplined on rate has helped the company “cover some of the extraordinary costs related to the pandemic,” Brookdale EVP and CFO Steve Swain said during the earnings call.

Preparing for the future

With progress made in the second quarter of 2021 and potential tailwinds on the horizon, Brookdale’s leaders are feeling bullish about the company’s outlook. That is due to several factors in particular: demand is returning to Brookdale’s communities; new senior living supply has dropped dramatically from peak levels before the pandemic; and there is now a higher presence of chronic conditions among older adults and fewer unpaid caregivers to look after them with every passing year.

“Our community associates have the skills and desire to provide these services,” Swain said. “With this solid foundation for growth, returning just to 2019 pre-pandemic occupancy and margin levels would drive over $300 million of additional [net operating income].”

But that doesn’t mean Brookdale’s leaders don’t expect some challenges in the short-term, either. In particular, labor will remain a pain point for the foreseeable future as the company fills sorely needed job openings with contract labor or overtime.

“The fierce competitive workforce environment will put near-term pressure on our margin, but we expect this will be transitory and that our margins will improve in 2022,” Baier said on Friday’s earnings call.

The uncertain nature of the delta variant is also making predicting the future difficult, and Baier said it’s possible that an uptick in cases could in some instances lead to a rollback of restrictions or even community closures.

Still, the fact that vaccines are highly effective at preventing symptomatic infection, severe cases of Covid-19 and death means that “the risk profile is significantly different today,” Baier noted.

Brookdale is also currently analyzing how to best deploy the $306 million it gained in net proceeds from the health services business line transaction with HCA.

“We’re evaluating potential uses of that cash, such as de-leveraging some communities as we refinance their 2022 maturities, perhaps a small pay-down of higher-interest-rate debt, or targeted investments to accelerate growth,” Swain said. “We continue to focus on enhancing liquidity through occupancy growth and expense discipline.”

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