Brookdale road test of turnaround strategy leads to 'renewed focus,' CEO says

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Cindy Baier
Cindy Baier

Brookdale Senior Living's three-pronged strategy to turn its business around — focusing on employees, residents and their families, and shareholders — is showing signs of success, executives said Tuesday on a second-quarter earnings call.

June visits that saw approximately 20 members of the company's senior leadership team work in Brookdale communities across the country affirmed that the company is on the right track with changes, including decentralizing some decision-making, despite mixed results in the second quarter, President and CEO Lucinda “Cindy” Baier said.

Baier traveled to Brookdale Wilsonville, a personal care and independent living community in Wilsonville, OR, and Brookdale Oswego Springs Portland, a personal care community in Portland, OR.

“These were not tours,” she said. “Over the course of a week, we prepared and served meals, cleaned rooms and worked the overnight shift. We walked in the shoes of our community associates, built relationships and gained a better perspective of what needs to be done to win locally. We came back with a renewed focus on what it will take to turn around our company and, most importantly, provide the best care for our residents.”

Employees

To attract and retain high-quality workers, the company has reduced its number of regions, improved the span of control and vertically realigned the sales organization so that community-level sales associates now report to sales leadership, Baier said. Additionally, the contact center now operates on extended hours and seven days a week, she said.

“All of these changes enable Brookdale to become more agile, where the contact center is able to drive more high-quality leads, sales directors are more focused on converting leads to move-ins and executive directors have the ability to make decisions more quickly for their residents and associates,” Baier said.

The latter change has lowered controllable move-outs and improved employee morale and retention, Baier said. The trailing 12-month retention rate improved 2% on a year-over-year basis for executive directors and health and wellness directors and 5% for sales directors, she said.

Residents and families

Second-quarter, same-community senior housing weighted average occupancy was 84.3%, a decline of a 100 basis points compared to the second quarter of 2017, and sequentially lower by 50 basis points from the first quarter, Interim Chief Financial Officer Teresa Sparks said. Occupancy turned positive from May to June, however, and the positive trend continued through July, she said.

The National Investment Center for Seniors Housing & Care reported a second-quarter decline in occupancy of 40 basis points sequentially and 80 basis points year-over-year, Baier said. “Overall, our second-quarter, same-community occupancy decline was slightly less than NIC on a sequential and the year-over-year basis after adjusting for the difference in product mix,” she said, noting that assisted living is a large part of Brookdale's portfolio.

“The industry as a whole showed more pressure in the assisted living category,” Baier said. “Since assisted living is a larger part of our business, it masked the positive news that our retirement centers — or independent living, in NIC terminology — delivered solid occupancy improvement year-over-year and sequentially.”

Leads were up 11% compared with the second quarter of 2017, first visits continue to show a positive trend, and controllable move-outs improved 8% on a year-over-year basis, the CEO said. Move-ins, however, were lower.

“There is a lag between the time someone visits a community and the time they ultimately move in, so we would expect to see some improvement in the third quarter,” Baier said. “I will also say that there was a very competitive environment, with lots of new deliveries, in the second quarter, and we think that is reflected in our results.”

Shareholders

Since the beginning of the second quarter of 2017 and through the second quarter of 2018, Brookdale has sold or terminated the leases on 94 communities, Sparks said.

As the portfolio is streamlined through agreements with HCP, Ventas and Welltower and other transactions, the company expects to have a higher concentration of owned assets, she said.

Brookdale is close to selling a high-value asset and finalizing an agreement related to a portfolio of approximately 20 assets, Baier said. “The board and I continue to assess our capital allocation options related to the future proceeds of these asset sales,” she said.

Financial results for the quarter generally were in line with expectations, Sparks said. “Total revenue was $1.16 billion compared to $1.19 billion in second quarter of 2017,” she said. “This 2.6% decrease reflect the disposal of communities through sales and lease terminations and reflects lower occupancy, which was experienced industrywide.”

Same-community revenue declined 0.3% compared with the prior year, with a second-quarter year-over-year rate increase mitigating some of the occupancy decline, Sparks said.

Brookdale earned $10.2 million in ancillary services income during the quarter, lower than the same quarter last year but more than the previous quarter, she said. The decline was primarily driven by home health, Sparks said.

“The home health business continues to have lower business,” she said. “However, we are seeing progress, especially beyond our community walls. …The residents at our communities that utilize our home health services are a unique base of patients, as they reside in an environment that provides personal care and oversight, unlike a traditional patient residing at home. As a result, we have historically experienced a lower ratio of nursing to therapy visits.”

Hospice revenue increased by approximately 25% for the second quarter on a year-over-year basis, Sparks said.

In Focus

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Residents and friends of Juniper Village at Brookline's Wellspring Memory Care in State College, PA, recently took a virtual trip to the beach.

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