Brookdale Carries Momentum Into Q1, Targets Margin Growth and Hiring in 2022

Brookdale Senior Living (NYSE: BKD) drove occupancy and revenue gains in the first quarter of 2022 — and CEO Cindy Baier believes the company will only build on its momentum in the rest of the year.

Giving Baier confidence is the fact that the Brentwood, Tennessee-based senior living operator’s occupancy only dipped 10 basis points between the fourth quarter of 2021 and the first quarter of this year, landing at 73.4%. That is notable given the fact that the operator’s occupancy typically doesn’t positively inflect until April or May, according to Baier.

The company’s sales teams also achieved more than 2,000 move-ins in March, which Baier noted is the highest number of move-ins during the month in the company’s history.


At the same time, Brookdale’s leaders reported double-digit revenue per available room (RevPAR) gains, with an 11% increase from 1Q21 to 1Q22. Revenue per occupied room (RevPOR) increased 5.1% in that same time period. Those gains helped push Brookdale’s total revenue to north of 637 million in the first quarter, and the company’s executives believe they will also help expand net operating income (NOI) margins this year.

“With exceptionally strong RevPAR growth in the first quarter, and tangible progress against our strategic priorities, we expect our momentum to continue to accelerate as the year progresses,” Baier said.

Brookdale is the nation’s largest senior living operator with over 675 communities across 41 states.


‘Good momentum’

Analysts who cover Brookdale noted that its latest earnings were in line with their previous expectations.

Senior housing resident fee revenue in 1Q22 was up $60.6 million, an increase of 10.9% compared to 1Q21.; The company’s same-community average weighted occupancy is up 390 basis points from the first quarter of last yar, increasing from 69.5% in 1Q21 to 73.4% in 1Q22. In the month of April, subsequent to the end of the quarter, the company’s weighted average occupancy had ticked up to 73.9%.

“While peak omicron drove monthly occupancy lower in January and February — dipping 30 basis points below December levels to 73.3% — occupancy bounced back in March and gained an additional 30 basis points in April to 73.9%, providing good momentum for the second quarter,” wrote RBC Capital Markets Analyst Ben Hendrix in a May 5 note to investors.

Brookdale also reported increased operating expenses in the first quarter of 2022. Senior housing operating expenses registered at $493 million for the quarter, representing an approximately 10.7% increase over what the company saw in 1Q21. Those gains were primarily due to labor costs from contract labor and overtime. Higher food prices, repairs and maintenance costs also contributed to the increase in operating expenses.

Analysts at Stifel said they were confident Brookdale was “on track to grow earnings aggressively in the next few years” as occupancy improves and recovery continues.

“While operating costs, particularly labor expenses, came in higher than we’d expected this quarter, the strong rate growth absorbed the excess costs as margins held up well in a flat occupancy quarter,” wrote Stifel analyst Tao Qui in a May 6 investor note.

Brookdale’s share value dipped 2.16%, resting at $6.08 by the time the markets closed on Friday.

Strategic priorities for 2022

Baier said during the call that the company is focused on three main strategic priorities for the coming year: Filling every available room at the best possible rate, continuing to hire full-time associates and add to the company’s 33,000-associate workforce, and maintaining service quality.

Regarding hiring, Brookdale has hired more employees than have left the company every month since last November. Net new hires nearly doubled in the first quarter compared to 4Q21 and continued to accelerate this month, according to Baier.

Brookdale implemented resident rate increases to help mitigate higher labor costs and to fight inflation. Since November, Brookdale reported growth of net positive hires even as contract labor remains a pressing issue for many operators’ bottom lines.

Baier noted that hiring more full-time employees will also cut down on agency and overtime usage, trimming labor costs in the process. She added that the company expects to see contract labor usage and costs moderate in the second quarter, then “decline more substantially” in the year’s second half.

“What we’re really focused on is making sure that we have enough associates so that they’ve got the flexibility to take those shifts that they want, and we’ve got adequate Brookdale associates who can do that,” Baier said.

Quarantine protocols for associates was “absolutely a factor” in the increased contract labor expenses, Baier added, with elevated labor expenses in January and February due to the Omicron surge. With nursing positions highly competitive, Baier said that specific staffing area also played into the use of contract labor coming out of 4Q21.

On a same-community basis, 1Q22 labor expenses increased 4.5% compared with the fourth quarter of 2021. But an increase in rates helped the company achieve those higher costs, according to Brookdale Chief Financial Officer and Executive Vice President Steven Swain.

Price competition is also lessening in Brookdale’s markets, and the company is seeing less discounting of rates among its competitors than in previous quarters, which should help with future rate increases.

“We expect an improvement over the next few quarters as we take contract labor out,” Swain said. “As labor expenses decrease from Q1, we expect that to drive NOI margin expansion throughout the year.”

To boost retention,Brookdale increased wages and implemented technology that aided more flexible scheduling for workers. Baier also added that Brookdale had bolstered its recruitment team while reviewing short-term incentives to support those efforts.

With regard to capital expenditures, Swain said Brookdale was seeing a “moderate inflation risk” coupled with supply chain risks, leading to increased lead times on community equipment expenses.

“However, we have been able to generally manage these risks through product substitution and pricing protection given our large existing contracts. So that’s kind of how we see inflationary pressures as we go forward,” Swain said.

Baier also noted she was “excited” about the company’s partnership with HCA Healthcare, which acquired a majority stake in Brookdale’s home health and hospice business in February 2021; and with home health operator LHC Group, which acquired 47 assets from that joint venture in 22 states last September before itself being acquired by UnitedHealth Group (NYSE: UNH).

With the direct link to UnitedHealth, Baier said she sees “the possibility for an even deeper relationship,” though those possibilities are still in “early innings.”

“When you recognize the value that our product provides to the health outcomes of our residents, that’s something that is a real value,” Baier said.”We do think that as Medicare Advantage grows, and as we become much more closely integrated with the health care continuum, good things will happen.”

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