With occupancy showing upward momentum and more resident rate increases likely, leaders with Brookdale Senior Living (NYSE: BKD) see a long runway to make up ground in revenue in this year.
In fact, Brookdale executives believe the company will grow annual revenue per available room (RevPAR) by 10% to 12%, with adjusted EBITDA guidance of about $240 million to $260 million in 2022.
Whether Brookdale can grow revenue at that rate this year depends on its success in recovering occupancy, and the operator will still have to manage rising expenses and labor challenges in the months ahead. But with 10 consecutive months of occupancy growth behind it, CEO Cindy Baier is optimistic about what the Brentwood, Tennessee-based operator can achieve.
“As we enter the third year of the pandemic, our focus is to accelerate our occupancy growth and to improve margins,” Baier said during the company’s fourth-quarter 2021 earnings call with investors and analysts Tuesday.
For the fourth quarter of 2021, Brookdale Senior Living posted a net loss of $81.7 million, primarily due to a $78.1 million decrease in other operating income but partially offset by a $21.2 million increase from income taxes and an increase in senior housing resident fee revenue.
The company’s 4Q21 revenue of almost $643.9 million missed analyst expectations by nearly $2 million, while its 4Q earnings per share of negative 44 cents fell short of expectations by one cent.
As of Dec. 31, Brookdale had a senior living portfolio composed of 646 communities, 347 of which it owned.
BKD stock jumps 17%
Brookdale’s forecast for occupancy and rate growth is an indication that the company’s margin should meaningfully expand this year despite increases in labor costs, according to Stifel Analyst Tao Qiu.
“Early 1Q22 data also shows good seasonal performance in occupancy and moderating agency labor,” Qiu wrote in a Feb. 14 note to investors.
RBC Capital Markets Analyst Ben Hendrix noted that Brookdale posted decent 4Q21 results, no small feat considering the quarter saw the emergence of the omicron coronavirus variant.
“Steady occupancy improvement and disciplined pricing drove the company’s first year-over-year RevPAR growth quarter since early 2020,” Hendrix wrote in a Feb. 14 note to investors.
Jefferies Equity Analyst Brian Tanquilut took a slightly more skeptical view of the company’s road ahead.
“Our view is that Brookdale will be hard-pressed to drive occupancy growth above 4% year-over-year, especially given the sequential decline already seen in January and the expected seasonality trend over the course of the year, as well as our views on macro factors affecting senior housing,” he wrote in his most recent note to investors. “And while management’s decision to raise rates ~5% makes sense and gives Brookdale visibility into a key component of revenue growth, we are concerned that this rate increase could dampen occupancy improvement, which may be the case for the whole industry, not just Brookdale.”
Brookdale’s stock jumped more than 17% to rest at $6.32 by the time the markets closed Tuesday.
RevPAR optimism
Brookdale grew its RevPAR about 4% in the fourth quarter of 2021 compared to the same period in 2020 as the company enacted in-place rent increases and shifted its occupancy mix to more memory care and skilled nursing services.
Looking ahead, several factors give Brookdale leaders confidence that momentum will continue into 2022, with annual RevPAR growth of 10% to 12% this year.
The first is the fact that the company has made great strides to preserve resident rates, including by enacting a healthy rate increase at the beginning of this year in line with what other operators have done. And so far, resident pushback to those increases has remained minimal.
“Given that a lot of the rate increases are driven by inflation and labor costs, that was obviously part of the explanation to our residents,” Baier said during Tuesday’s call. “And we have not seen a material increase in attrition of our resident base as a result of the wage increase.”
Brookdale’s portfolio is also unique in that it has “more upside” than those belonging to other publicly traded senior housing companies, according to Baier.
Another tailwind is the operator’s occupancy growth, which has held steady upward momentum over the last 10 months. The company ended January 2022 with an average occupancy rate of 74.2%, with 100 basis points gained sequentially in the fourth quarter of 2021 — an “outstanding” result given the industry’s seasonality, Baier said.
“If we can continue — which I believe that we can — that sequential occupancy growth, that will give us significant leverage [on rate growth],” she said. “And certainly, we’ve demonstrated that we can have a long run of occupancy growth.”
Baier also noted that the baby boomer demographic is “finally at a point Brookdale dreamed about more than 15 years ago,” with 1 milllion older adults expected to reach target senior housing age annually starting this year.
And although the company is seeing an increase in the rate of new communities in its markets, the pandemic’s chilling effect on development and construction should give Brookdale a tailwind for the next 18 to 24 months, Baier said.
Like any other operator today, Brookdale will need to balance revenue with rising expenses.
Senior housing facility operating expenses in 4Q21 increased by $3.6 million, or 0.7%, primarily due to an increase in labor expenses driven by the significant use of contract labor and overtime. And more generally, the operator has seen cost inflation for certain positions, such as nurses, caregivers, med techs, CNAs and dining staff.
“We’ve seen more labor inflation at the hourly worker level than we have at the salaried worker level,” Baier said.
Those costs were partially offset by a decrease in incremental direct labor costs and cost decreases in employee benefits and workers compensation, as 4Q had “fewer than expected health claims,” according to CFO Steve Swain.
At the same time, Brookdale’s general and administrative (G&A) expenses shrank, going from $45.3 million in 4Q20 to $38.8 million in 4Q21.
‘Substantial’ earnings growth expected
Looking ahead to 2022, Brookdale executives expect occupancy to return to more typical seasonal trends after the pandemic brought disruption and uncertainty. As such, Swain noted that the first quarter will likely be the weakest quarter of the year for occupancy, with momentum building in the second quarter and further accelerating in the third quarter.
Brookdale is also looking to get a handle on labor expenses in 2022. Although the company currently still leans on contract labor and overtime, filling open positions this year should help alleviate those pressures.
“The savings from lower overtime and fewer contractors [will] more than offset the cost of filling these positions,” Swain said. “In most cases, the cost of contract labor per hour is at a significant premium compared to a permanent associate’s rate.”
The company reviews its wages and benefits in 2021 to stay competitive when hiring workers, and that focus will continue into this year. Additionally, the provider is taking a closer look at its culture, career development and learning opportunities for associates.
“It’s going to take us a few months to get our net hiring to where we want it to be, but needless to say, we’re making great progress,” Baier said.
The operator expects to increase incremental variable labor cost with continued occupancy growth, according to Swain.
“With our expected strong occupancy and rate increases, along with partially mitigating operating expense increases, we expect substantial EBITDA growth in 2022,” Swain said.
Although they don’t have a target date in mind, executives have a long-term goal of getting back to around 90% stabilized occupancy — something the company has done before, Baier noted.
“It has been an intense year, and we are solidly on the path to recovery,” she said.
Companies featured in this article:
