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Brookdale Senior Living Poised for Occupancy, Rent Growth ‘Supercycle’ in 2023

Leaders with Brookdale Senior Living (NYSE: BKD) see the operator on the cusp of a “supercycle” that will see its occupancy and rate growth pick up momentum in 2023.

After single-digit rent increases in 2022, the nation’s largest senior living operator is gearing up to raise resident rates more than 10% in 2023 at “significant benefit to the bottom line,” according to CFO Steve Swain. 

And the company is expecting to see occupancy continue to climb in the year ahead, with its sights set on reaching pre-pandemic occupancy — and beyond — in the forseeable future.

In the meantime, the Brentwood, Tennessee-based operator is continuing to grapple with labor expenses driven primarily by competitive wage increases for associates and contract labor use. And while that, too, is trending in the right direction, Brookdale CEO Cindy Baier said the company’s progress on that front was “slower than expected.”

“Associate turnover remains elevated and we are working to reduce it, which will decrease training costs and improve workforce productivity,” Baier said Tuesday during the company’s third-quarter 2022 earnings call. “Competition for community associates remains fierce and wage pressure continues as a result of the highly competitive labor market.”

That said, Baier believes there will be less pressure on labor in 2023, driven primarily by fewer expected U.S. job openings.

“We are still in the early stages of what we expect to be a long and prosperous tailwind,” she said. “We have strong occupancy momentum and our 2023 pricing will incorporate inflationary impacts.”

Brookdale Senior Living as of Sept. 30 operated and managed 672 communities in 41 states.

The senior living operator’s share value was mostly flat, hitting $4.35 by the time financial markets closed Tuesday.

‘Beginning of a supercycle’

Giving Brookdale executives confidence that a “supercycle” is looming in 2023 is the fact that the company significantly grew revenue in the third quarter, even as it faced some lofty challenges; and that supply-demand fundamentals have shifted in favor of the operator.

Revenue per available room (RevPAR) increased 9.7% in the third quarter of 2022 compared to the previous quarter. At the same time, revenue per occupied room (RevPOR) grew 4.2% in the quarter.

At the same time, occupancy is trending upward. In the third quarter of 2022, the company’s average occupancy rate sat at 76.5%, representing a 190 basis point increase from the prior quarter.

Although the company usually sees a flat quarter for occupancy growth in the fourth quarter of the year, Brookdale execs believe the company will notch an occupancy gain of 50 basis points compared to the third quarter of 2021.

“We have seen sequential improvement in re-lease rates, which we’ve seen particular strength compared to in-place resident rates in AL, for instance,” Swain said. “So, we do think that we are at the beginning of a supercycle, if you will, where we have occupancy growth and strong rate performance.”

That progress occurred in the face of “a 100-year pandemic, 40-year inflation, the fifth-worst hurricane in the United States and unprecedented labor market pressures,” which made operations and future guidance difficult, Baier added.

Facility operating expenses increased about 2.5% in the third quarter of 2022, as utility costs grew and the company incurred additional expenses related to an additional calendar day in the period.

Labor costs in the third quarter grew about 1% compared with the second quarter of 2022. Contract labor spending decreased 40%, while at the same time the number of training hours for new associates grew.

“Despite ongoing challenges in the US labor market, we achieved 11 consecutive months of positive net hires through September,” Baier said. “Year to date, our net hires exceeded 4500, increasing our employed workforce by 14%.”

All of those trends give management confidence that 2023 is the beginning of a straightaway for occupancy and resident rate growth. In fact, Baier said there is “no question” the company is on the road to more growth ahead.

Brookdale management believes that, as long as the company can maintain its momentum in the coming quarters, its pre-pandemic occupancy of 84.5% is within reach. That would drive at least $275 million of incremental revenue.

Should the company hit its historic occupancy milestone of 89%, that would result in at least $430 million of incremental revenue, according to the operator.

Looking ahead, Baier believes it is likely the company will continue to make progress, and that one need only look at the fundamentals to see why.

“I do think that we’re at a time now where supply and demand are tailwinds as opposed to headwinds, with that aging baby boomer demographic and the constricted supply as a result of both Covid-19 as well as rising interest rates,” Baier said.

At the same time, occupancy is trending upward. In the third quarter of 2022, the company’s average occupancy rate sat at 76.5%, representing a 190 basis point increase from the prior quarter.

Although the company usually sees a flat quarter for occupancy growth in the fourth quarter of the year, Brookdale execs believe the company will notch a modest occupancy gain of 50 basis points compared to the third quarter of 2021.

More asset sales unlikely

Preceding Tuesday’s third-quarter earnings calls was a report in October that the company was exploring a sale. As recently as last month, Brookdale was engaged with financial advisors on finding possible buyers, according to a report from Bloomberg.

Brookdale management didn’t directly address the report during the company’s earnings call, but did provide a window into their thinking for future real estate sales.

Baier reiterated that she sees a big opportunity to gain revenue in 2023, and thus, the company was not looking to offload many assets in the coming year.

“Now, that’s not to say that we will never sell real estate, there may be a community here or there that doesn’t fit with our strategy and that we choose to dispose of,” she said. “But it’s not as big a part of our future as it was of our past.”

The post Brookdale Senior Living Poised for Occupancy, Rent Growth ‘Supercycle’ in 2023 appeared first on Senior Housing News.

Source: For the full article please visit Senior Housing News

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