Brookdale Senior Living executives said Tuesday that they expect the rest of 2017 to be “challenging” but that they are pleased with the progress they are making on improving the company’s operational performance.

While not directly addressing rumors of a potential sale of some or all assets of the Brentwood, TN-based company, Executive Chairman of the Board Dan Decker told analysts and others participating in a first-quarter earning call that the company is exploring “options and alternatives available to us to create and enhance shareholder value,” although no decisions have been made.

“Brookdale will only enter into a transaction or transactions if it can do so with returns that our board concludes are in the best interest of the company and its shareholders,” he said. “While the review process continues to be active and ongoing, there is no set date for it to conclude.”

While the exploration is underway, President and CEO Andy Smith said, Brookdale remains committed to providing high-quality care to residents and career opportunities to employees.

“Our strategy is focused on operating efficiently and effectively at the local level, while taking advantage of being a scale operator,” he said.

Toward that end, Smith said, Brookdale is:

  • Introducing a dynamic pricing system for its independent living communities, which it expects to result in increased revenue.
  • Using its number one position to garner a priority position for digital marketing.
  • Enhancing talent-development processes and working to improve career paths for employees. “While high turnover is a reality for our industry, we are focused on minimizing associate turnover to improve our business,” Smith said. “Given our position as the market leader, our goal is to attract, develop and retain the best talent in the industry.”
  • Continuing to segment communities within local submarkets to create various price points for residents.
  • Enhancing the capability to cross-sell across networks of segmented communities.
  • Selling communities that aren’t consistent with the company’s strategy or return expectations. “Our goal is to have a portfolio that will enrich the lives of our residents while providing strong long-term returns for our shareholders,” Smith said.

The first quarter saw challenges related to flu deaths, up 10% compared with last year, he said. That meant that the number of days that Brookdale could not accept new residents increased by 24% or 25% compared with last year, Smith added.

Also, the quarter saw labor and wage pressures that are expected to continue for the rest of the year, he said. Average wage rate growth year-over-year was 4% for the first quarter, Chief Financial Officer Cindy Baier said, and same-store labor expense growth was up 2.1%. The company is seeing “pretty significant wage pressure” on both coasts and in the Midwest, she said.

“We’re still expecting to see 5.5% to 6% growth in our total labor expense, including benefits, for the year,” Baier said. “But we’ll flex labor and manage it with occupancy as the year progresses.”

Despite the challenges, however, Brookdale saw a marked improvement in margin on its ancillary service business, Smith said. Such services earned the company $15.6 million in income during the first quarter, a 7.7%, or $1.1 million, increase over the prior year period, Baier said.

The company also made “significant progress” on balancing its portfolio by completing a joint venture with Blackstone Real Estate Partners VIII L.P., Smith said; Brookdale acquired a 15% ownership interest in the joint venture, which purchased a portfolio of 64 communities formerly leased to Brookdale by HCP.

“Given that this transaction occurred at the end of the quarter, we will start seeing the benefits of the transaction in our second-quarter results,” he said.

First-quarter, same-community average occupancy declined 100 basis points year-over-year to 85.7%, Baier said, and same-community occupancy declined 80 basis points sequentially.

Occupancy should remain competitive across the industry for 2017, Smith said, but both occupancy and rate pressure should start to lessen in 2018.

“As we look at the real estate development cycle, we believe 2017 will be the peak for new competitive deliveries,” he said. “It generally takes 18 to 24 months to build a new community. New construction starts have been declining for over a year, and the construction pipeline has started to get smaller. So for 2017, we expect a continued fight for occupancy, with discounting remaining an issue in many of our markets.”

Brookdale’s revenues of $1.22 billion were down 3.2% year-over-year, but adjusted EBITDA (earnings before interest, tax, depreciation and amortization) grew 8.5% to $198.3 million for the first quarter, compared with $182.7 million for the first quarter of 2016.