For Brookdale Senior Living (NYSE: BKD), occupancy is back on the upswing and expenses are falling — and the nation’s largest senior living provider believes its margins will grow in the latter half of 2021.
The Brentwood, Tennessee-based provider’s net move-ins and move-outs, or “MIMO,” turned positive in the month of April, which was “earlier than expected,” according to Brookdale CEO Cindy Baier.
“Our month of March was the highest single net MIMO since August of 2017,” Baier said during a presentation at RBC Capital Markets’ Global Healthcare Conference, which was held virtually Wednesday. “In addition, that positive momentum or that positive net MIMO continued into April.”
New inquiries were also up 24% in the first quarter of 2021 over the fourth quarter of 2020.
At the same time, leaders with the company believe its second-quarter Covid-19 expenses will decline by at least $15 million to $17 million, which is more than half of the $27 million worth of Covid-19 costs that Brookdale reported in the first quarter.
Brookdale has incurred about $152.9 million in pandemic-related expenses since early 2020. Of those costs, 38% related to employees, 37% related to PPE and medical supplies, and 25% related to cleaning and other duties, according to Brookdale’s first-quarter earnings filing.
The company’s leaders also believe that they will be able to boost occupancy without having to substantially increase labor costs.
And Brookdale’s vaccination efforts are helping to lessen the impact on the company’s bottom line. As of the end of April, 93% of the provider’s residents were fully vaccinated — and the effort has helped drive down new active cases of Covid-19 by 97% since mid-December.
“The low level of cases enables us to reduce special unit costs and the related premium pay, along with other costs such as PPE,” said Brookdale CFO Steve Swain. “We also are expecting testing costs, for instance, to decline as states loosen their requirements.”
Brookdale management has also focused on maintaining monthly rental rates, despite seeing “anything that you can imagine” from competitors, Baier said. In the first quarter of 2021, Brookale’s revenue per occupied unit (RevPOR) grew to $5,219, which was a 2.9% increase over the company’s RevPOR of $5,097 in the first quarter of 2020.
“We maintained rate discipline in the toughest part of the pandemic, and we expect that our pricing strategy will continue to provide benefits in the future,” Baier noted.
Brookdale’s occupancy reached 71.1%, at the end of April. That represents an improvement of 100 basis points over the company’s occupancy rate of 70.1% at the end of February — and it strengthens Baier’s belief that the company is at a “positive inflection point.”
“We really think that the fuel for this growth are the Covid-19 vaccines that are critically important for improving our business trends,” Baier said.
These trends, coupled with the ongoing recovery in the senior housing industry, give Swain confidence that the company’s margins will head in the right direction in 2021.
“We continue to expect sequential occupancy growth in the second quarter and even stronger growth in the third, which will lead to stabilizing margins in the second quarter and growing margins in the second half,” Swain said.
As of the first quarter of 2021, Brookdale had 695 communities in its senior housing portfolio.
Another factor boosting the company’s outlook is the fact that new supply has sharply dropped over the past year, thanks in part to a deep-freeze in the availability of capital and record-high building material costs.
New construction starts within 20 miles of Brookdale communities have dropped at a rate equaling 80% since the industry’s peak in 2015; 54% since the first quarter of 2020; and 24% between the fourth quarter of 2020 and the first quarter of 2021. And, new community openings were also 43% lower in the first quarter of 2021 than they were during the industry’s peak in 2017, Swain said.
“The current low construction starts, we believe, will provide a tailwind for several years,” he added.
Brookdale’s leaders have also long anticipated the arrival of the baby boomers as a census-booster, and the demographic already makes up about 12% of Brookdale’s current residents, Baier said.
Brookdale also believes there is about $24 billion left in the CARES Act Provider Relief Fund remaining to be allocated. While it’s unclear how much of that senior living providers will ultimately see or how the federal government will allocate the funds, Baier said Brookdale is prepared to file a request for more aids “as soon as possible.”
“We do have a significant amount of costs and lost revenue that are potentially eligible for reimbursement,” Baier added.
The provider’s recent deal to sell an 80% stake in its home health, hospice and outpatient therapy service line to Nashville-based health system HCA Healthcare is also a bright spot.
“We will receive $300 million in net proceeds, and that will strengthen our liquidity position,” Baier said. “And we will continue to have an ongoing 20% interest that will provide us with the opportunity to benefit from the growth of this business while being part of the HCA Healthcare platform.”
Despite more positive signs in recent weeks, the company’s executives have not provided guidance for 2021. And no doubt there will be some challenges ahead — particularly on the labor and hiring side. The company’s associates walked a “tough road” during the pandemic, and Brookdale had used overtime and contract to fill in where needed, Swain said.
Still, while Baier has held off from projecting the trajectory of the recovery, she is optimistic that the company has finally reached a turning point in the Covid-19 pandemic, with “green shoots” emerging now and better market conditions ahead.
“We expected the new supply will be a tailwind for us, for the next couple of years, and then we believe that demand is going to turn in our favor,” Baier said.
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