4 strategies Brookdale is using to combat new competition

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Andy Smith
Andy Smith

The opening of new communities near Brookdale Senior Living properties challenged the country's largest senior living operator in the second quarter, President and CEO Andy Smith told participants in a Tuesday earnings call. But the company is using at least four strategies to fight that competition, he said.

Sixty-eight competitor communities opened within a 20-minute drive of an existing Brookdale community, and 41 new projects began in the quarter, he said. “This means we will have 364 of our communities facing future new same-product competition within 20 minutes,” he said, adding, however, that construction seems to be tapering off.

The company operated 1,039 communities as of June 30, according to supplemental material released in conjunction with the call. Weighted average occupancy in the quarter was 84.6%.

Read more about Brookdale's second-quarter results here.

“When we face new competition in markets, there are number of different techniques that we use to combat that new competition,” Smith said.

Those strategies include examining compensation related to key positions, spending more on capital improvements and marketing, and adjusting market rates as necessary, he said.

Review process is ‘active and ongoing'

Alluding to media reports of a potential sale of some or all of the company's assets, Brookdale Senior Living Executive Chairman Daniel Decker said Tuesday that the company's process of exploring options and alternatives to improve shareholder value is “active and ongoing.”

“Our board, in conjunction with management and our financial and legal advisers, remains hard at work on the ongoing review,” he said during the company's second-quarter earnings call, adding that the process may not lead to a specific transaction or transactions.

“I want to reiterate that no decision has been made to enter into any transaction at this time and want to confirm that Brookdale will only enter into a transaction or transactions if it can do so under terms that our board concludes are in the best interest of the company and its shareholders,” Decker said.

Steps to improve financial position

Overall, after a “mixed” operating performance in the second quarter, Smith said, Brookdale is taking several steps to improve its financial position.

“While we continue to expect that 2017 will be a difficult operating environment, we remain confident in our plans,” he said. The company's size, scale and operating systems should be advantages in the effort, he added.

Among the company's plans:

Staffing. “We continue to increase the sophistication with which we approach recruitment, compensation, development roles and responsibilities as well as training,” Smith said. Turnover among key community leadership positions improved by 15% in the second quarter compared with the second quarter last year, he said. New onboarding and processes include a partner program and an eight-week interactive training course to improve retention of people in key community leadership positions, according to supplemental materials released by the company.

New concepts. Brookdale may try to increase demand by offering new concepts on the higher or lower end of senior housing.

Digital media. Brookdale has improved its website in recognition that 61% of prospects begin their search for senior living online, Smith said. “At the same time, a vast majority of them do not have a very good understanding of the costs and the benefits of what they are shopping for,” he said, adding that the improved website aims to educate consumers and encourage them to interact with Brookdale employees.

Ancillary services. Brookdale hopes to generate more revenue through resident and nonresident use of new and existing ancillary services such as home health, outpatient therapy and hospice services.

“We are the only provider in the senior living industry with an integrated, robust ancillary services platform,” Smith said. “While other companies have third-party providers coming into their communities, those providers don't have the opportunity to build out the interaction with their customers as a single provider.”

Chief Financial Officer Cindy Baier said that the company had $13.1 million in operating income from ancillary services in the quarter, a $5.9 million decline from the prior-year period. The decrease, she said, was caused by a drop in volume and a lower Medicare reimbursement rate that started Jan. 1.

Hospice services continue to grow and outperformed last year, Baier said.

Pricing. Brookdale has rolled a new data-driven pricing model to 174 independent living communities and plans to introduce it in assisted living and memory care communities in 2018, Smith said. “These systems use multiple data points to predict and update the rate that will maximize revenue for each apartment,” he said. “Over time, we believe this process change will produce meaningful revenue improvement.”

Segmentation. Brookdale operating teams have assessed all properties regarding location, price, services, amenities and programs to determine the proper market position for each of them, Smith said.

Network selling. After a pilot program, the company implemented network selling across many markets on April 1. “Network selling leverages our size by offering customers multiple choices that only Brookdale can offer,” he said.

Sales and lease terminations. In the second quarter, Brookdale sold two communities (236 units) and terminated the leases on seven more (710 units), Smith said. The company currently has 14 communities (1,272 units) being held for sale and has agreements to terminate leases on 26 additional communities (2,031+ units) by the end of the year, he said.

Refinancing. Brookdale will refinance most of its 2018 debt maturities by the end of 2017, Smith said. The resulting liquidity in part will be used to repay the convertible debt in 2018 in cash, he added. The company had $546 million in liquidity on June 30, compared with $306.3 million on June 30, 2016, according to Baier.

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