Brookdale Senior Living (NYSE: BKD) made forward operational progress in the third quarter of 2021, and in a sign of confidence about the future, the company has returned to offering quarterly guidance for the first time since the pandemic began in 2020.
In fact, despite fierce labor headwinds, Brookdale CEO Cindy Baier is bullish on the future, particularly with regard to increasing rates, and she believes 2022 could be one of the best years on record for the industry.
She also is optimistic about prospects for Brentwood, Tennessee-based Brookdale, which added 200 basis points of occupancy in the third quarter of 2021, marking its eighth consecutive month of occupancy growth.
The company also further strengthened its liquidity position in Q3 by more than $300 million thanks to proceeds from selling an 80% stake in its home health and hospice service line to Nashville-based health system HCA Healthcare earlier this year; and by executing a $230 million convertible bond offering that “was significantly oversubscribed,” CEO Cindy Baier said.
At the same time, Brookdale is still facing a fiercely competitive labor market, as is the rest of the senior living industry. In response to those pressures, the company has increased its use of contract labor and overtime, driving its facility operating costs up $14 million higher than in the second quarter of 2021. Still, Baier believes these are transitory challenges, and Brookdale CFO Steve Swain said the company is seeing some “green shoots in that regard.”
Looking ahead, Baier and the leadership team believe Brookdale will be in a position to drive rate growth and expand the company’s margin.
“We have taken significant steps to support our operations and improve our liquidity in order to go beyond just weathering the storm to setting the foundation to advance Brookdale into a firm position of strength and to accelerate future growth,” Baier said during the company’s third-quarter earnings call with investors and analysts Friday.
Also notable is that Brookdale offered guidance for the fourth quarter of 2021, which is its first time doing so since early 2020 when the pandemic began. The company believes it will report adjusted EBITDA for the fourth quarter of 2021 in the range of $35 million to $40 million.
The company’s Q4 guidance suggests a “continued build in occupancy and earnings” ahead, according to a recent note to investors from Stifel.
“Management continues to improve operations and execute on transactions that enhance the balance sheet and boost liquidity,” reads the Nov. 4 Stifel note. “Of the three levers of growth, occupancy faced some Covid-19 disruptions in 3Q but is expected to improve; margin impacted by elevated expense growth; rate likely to see the biggest increase in years which is going to sustain the margin as inflationary pressure works through the economy.”
Brookdale’s stock price grew more than 14% to $7.57 by the time financial markets closed Friday.
Growth in 2022
Brookdale carried its second-quarter momentum into the third quarter this year by posting its largest average occupancy gains in at least the past six years. As of Oct. 31, average occupancy for the company’s 682 communities across the U.S. registered at 74.5%. That is notable given that the delta coronavirus variant led to clusters of severe Covid-19 outbreaks across the country.
“Even with the wax and wane of the pandemic, we continue to see positive momentum of top line growth,” Baier said.
At the same time, Brookdale also grew its revenue per occupied room (RevPOR) by 3.2% during the quarter, landing at $5,219; while revenue per available room (RevPAR) decreased to $3,784, which is within 1% of what it was the same time in 2020.
Baier expects that the recent increase in Social Security payments and the company’s ongoing occupancy gains will help the company increase rates down the road. That said, Brookdale communities are still offering some discounts and concessions in markets where it makes sense to do so.
“We’ve been very targeted in the third quarter, as always, about when to use a discount so that we can try to drive the highest possible revenue per available room,” Baier said.
At the same time, she believes Brookdale will be able to reduce its use of contract labor next year, even as the company is currently using more of it in 2021 than ever before. This, in turn, would help lower expenses even as the operator pays higher wages to its full-time associates to stay competitive.
“We will be able to reduce contract labor and overtime, but it’s going to take a little bit of time,” Baier said.
Also on the staffing front in the third quarter was the departure of former President of Senior Living Cindy Kent in September, who recently joined digital health company Everly Health as COO on Nov. 3.
Brookdale backfilled her position with the promotion of former regional vice president of operations Kevin Bowman to the role of executive vice president of community operations.
“He is well-regarded by associates and residents for his servant leadership, and has a track record of developing talent,” Baier said. “He hit the ground running in his new position and has already made a number of positive impacts.”
Also adding to the operator’s momentum is the fact that the senior living industry is seeing the fewest units under construction since 2015. That, coupled with expected demand driven by an aging American population, is priming Brookdale for future growth, according to company leadership.
“I think in the industry you’ll see occupancy growth, but I also think rate is going to grow,” Baier said. “I do expect strong RevPAR growth in 2022 — and I think it will be one of the best years in the industry’s history.”
The post Brookdale CEO Expects 2022 To Be Banner Year for Industry, Confident in Rate Growth appeared first on Senior Housing News.
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