Brookdale Senior Living (NYSE: BKD) CEO Cindy Baier believes the company is “off to a great start” in 2023, and staffing is a big reason why.
Leaders of the senior living operator made progress reducing the company’s staffing agency costs and “evolving” the company’s executive director role to take on more of a “growth mindset.”
“As we emerge from the pandemic, we believe that targeting and developing successful leaders with both operational and financial acumen is another way we can deliver further occupancy increases within our communities,” Baier said Wednesday during the company’s Q4 earnings call with investors and analysts.
Brookdale management also has “realigned” the company’s operational support functions, like financial planning and analysis, with the goal of better supporting the company’s 632 communities.
“In 2023, we seek to raise the bar even higher,” Baier said.
Adjusted operating income increased about $10 million or 7.7% from the third-quarter, the largest operating income step up in the previous six quarters. Brookdale also reported a 10% year-over-year increase in revenue per available room (RevPAR) for 4Q2022.
Revenue per occupied room (RevPOR) also ticked up 4.5% on a year-over-year basis following a decline in Q3. Brookdale’s Q4 average weighted occupancy was 75.4%, up from 71.5% in the same period last year, an increase of 360 basis points.
Brookdale’s 4Q22 results were “better than we had expected,” wrote Stifel Analyst Tao Qiu.
“With a strong rate growth and moderating expenses, we think the company can achieve healthy margin expansion and strong earnings growth in 2023,” Qiu wrote in a Feb. 21 note to investors. “Favorable demographics and limited supply growth provide a favorable backdrop for further recovery and growth beyond 2025.”
The Brentwood, Tennessee-based company’s stock closed at $3.34 per share, an increase of 11.3% on the day and about 21.5% year-to-date.
Labor spend a ‘critical focus’
Like other senior living companies, Brookdale management is laser-focused on margins in 2023. According to Baier, the company sees labor costs as a critical area of improvement.
The company is focused on swapping the use of agency staffers for in-house employee overtime. Already, the company had reduced labor usage 80% between December 2021 and December 2022. And last year, the company logged approximately 5,000 net hires, representing a 15% increase of the company’s internal workforce.
Still, Baier noted the company’s progress was “slower than we expected” on that front, given the competitive labor market.
“Looking to 2023, our focus is on reducing turnover and extending the length of service of our associates and community leaders,” Baier said. “We are building upon the actions we took in 2022 and expanding some of our successful pilot programs, including educational and career development opportunities for associates, diversification of recruiting programs to attract and engage the right people and improving training and onboarding.”
As Brookdale replaces agency labor with its own associates, the company is projecting the impact will be reduced expenses that could be noticeable as early as 1Q2023.
“I think that we would expect to have an improvement in our facility operating expenses from continued labor productivity,” Brookdale CFO Dawn Kussow said on the earnings call.
Kussow, who is replacing Steve Swain, pointed out that the reduction in premium labor costs is already moderating, with improvements in January.
“We would expect our facility operating expenses as a percentage of our senior housing revenue to improve significantly from Q4,” Kussow said. “Given that we have to hire fewer people in 2023, that should really help us with our overlapping labor costs.”
‘Growth mindset’ executive directors
Occupancy and margin growth are big targets for Brookdale in Q1. The company believes that executive directors can play a larger role in getting units filled at the best possible resident rate.
That evolution — spearheaded by Chief Sales Officer Rick Wigginton, according to Baier — includes a new model for compensation the company plans to roll out broadly in 2023.
“We’ve also redone the job description, so that it’s clear that our executive directors understand exactly what is most important to success,” Baier said. “And we’re working on developing training programs and cohorts that allow EDs to learn and grow as leaders.”
Brookdale also last year created career paths for caregivers who want to be CNAs or med techs. The company also has created leadership development programs for departmental managers with the intention of growing them into executive directors.
The company’s existing executive directors are also increasing their focus on reducing agency-sourced labor in 2023.
“We made significant progress in 2022, but the premium labor spend remains too high,” Kussow said.
2023 outlook
Baier said Brookdale will begin giving quarterly guidance in an effort to provide short-term transparency for investors.
“We believe this approach appropriately balances the continued uncertainty in the macro environment and the resulting difficulty that causes or predicting what’s ahead,” Baier said.
But on the whole, she sees the company’s efforts in 2022 as “setting the foundation” for success in 2023.
The company is expecting RevPAR growth of 11% to 12%, year-over-year, in the first quarter of this year. Baier also sees a return to more normal senior living seasonality in 2023.
“We are looking forward to 2023 being a strong year of execution for us,” Baier said.
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