Brookdale Recovery Slowed — But Not Stopped — By Delta Variant, Labor Pressures

The Covid-19 delta variant has slowed Brookdale Senior Living’s (NYSE: BKD) occupancy recovery, which has been on a six-month upward trend.

In particular, growth appears to be slowing in states and markets where the delta variant is spreading the fastest, the Brentwood, Tennessee-based owner-operator declared in a 8-K form filed Tuesday with the Securities and Exchange Commission (SEC), ahead of an investor meeting.

Based in Brentwood, Tennessee, Brookdale is the largest U.S. senior living provider, operating more than 680 communities.

Brookdale reported a weighted average occupancy of 72.5% for August, and 73.7% at month-end. Occupancy improved 50 basis points from July to August – the sixth consecutive month of occupancy gains for the company.

However, the improvement matched the occupancy gain from March to April, and was 30 basis points lower than the occupancy increase from June (71.2%) to July (72%). The company acknowledged the delta variant’s influence on occupancy growth in recent weeks.

Notably, positive Covid-19 cases in some states and local markets in which Brookdale operates have matched, or exceeded, their previous peaks of the previous winter, which may be contributing to a slight loss in consumer confidence.

“[Brookdale] believes that some potential residents and their families have become more cautious, or temporarily delayed their decision regarding, moving into senior living communities in certain areas as the delta variant has spread,” the filing read.

As of September 22, 2021, 97% of Brookdale’s communities were open to new move-ins, tours, and visitations. Despite the pressures from the delta variant, Brookdale remains upbeat that it will continue to achieve occupancy gains.

Margins are also under pressure due to ongoing labor challenges, with contract labor and overtime necessary, Brookdale stated in the 8-K.

But Brookdale’s leadership still expects labor pressures to moderate, driving margin improvement in 2022. Some analysts share these expectations.

“Near term choppiness in move-ins and margin may delay the pace of recovery by 1-2 quarters compared to our original estimates but the path is unchanged,” Stifel Analysts wrote in a Sept. 23 note.

The delta variant is tempering occupancy improvements across the senior living industry. During the Argentum conference in Phoenix earlier this month, ownership groups such as National Healthcare Investors (NYSE: NHI) and American Healthcare Investors (AHI) reported occupancy decreases in recent weeks as the delta variant surged.

AHI, which co-sponsors the non-traded REITs Griffin-American Healthcare REIT III and Griffin-American Healthcare REIT IV, reported occupancy declines for seven out of the past eight weeks due to rising Covid-19 case counts, Executive Vice President, Asset Management Ray Oborn said during the conference.

NHI reported similar trends and is working closely with its operating partners on 12-week cash plans to identify pain points and when they will occur, and contingencies for such occurrences. The REIT is also considering rent deferrals, operator transitions, or selling communities if these pressures continue.