Competition, labor issues continue to challenge Brookdale

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Andy Smith
Andy Smith

Wage pressure and community openings by competitors continued to challenge Brookdale Senior Living as 2016 came to a close and will continue to do so in 2017, company executives told analysts participating in an earnings call on Tuesday. Efforts to improve employee recruiting and retention, however, as well as changes to ancillary service offerings, should strengthen the company's financial outlook for the future, they said.

Executives expanded on the company's fourth-quarter and full-year earnings information, which had been released on Monday. For the fourth quarter of 2016, Brookdale's net loss increased 54.1% to $268.6 million compared with $174.3 million for the fourth quarter of 2015, and for the entire year, the net loss decreased 11.7% to $404.6 million compared with $458.2 million for 2015.

Regarding rumors that the country's largest senior living provider is in talks to sell part or all of the company, Executive Chairman Daniel Decker said that the company could not comment except to say that “Brookdale's board and management team regularly engage in a wide range of strategic opportunities to enhance shareholder value and … are in the process of exploring options and alternatives to create and enhance shareholder value.”

Brookdale saw a 15% increase of competitors opening new communities within 20 minutes of existing Brookdale properties within the fourth quarter of 2016 compared with the same period in 2015, Brookdale President and CEO Andy Smith said. “We saw new deliveries in 34 markets, with a total of 54 same-product competitors opening during the quarter,” he said, numbers that he described as record-setting.

Smith said that Brookdale expects new openings to continue at the same level through most of 2017 and then to decline as 2018 approaches.

The CEO said that Brookdale's memory care offerings have been particularly successful in muting the effects of new competition, exceeding national averages for occupancy reported by the National Investment Center for Seniors Housing and Care.

Overall, he said, occupancy is at least 90% at almost half of Brookdale's senior living communities, many of which are in “very competitive” markets. Chief Financial Officer Cindy Baier (pictured) said that the company's fourth-quarter 2016 weighted-average occupancy for the same-community senior housing portfolio declined 120 basis points to 86.3% on a year-over-year basis and that Brookdale saw a 30 basis point sequential decline in same-community occupancy during the fourth quarter.

Brookdale is not forecasting occupancy growth for 2017, Baier said.

To address occupancy issues, however, Smith said that Brookdale is focusing corporate marketing dollars on direct mail, digital and print ad efforts in 49 markets throughout 2017, augmenting community-level budgets to generate leads. The company also has reviewed pricing to ensure that it is competitive and has reviewed operating models to ensure that services are matching needs in local markets, he said.

Baier said that rate increases ranging from 3.5% to 5% went into effect in January.

Labor pressures

Another macroeconomic factor affecting the company is the labor market, Smith said. New competition, reduced unemployment and state minimum wage increases that went into effect Jan. 1 are resulting in wage pressure in some markets in which Brookdale operates, he said.

Labor expenses in 2016 increased 4.2% on a year-over-year basis, Baier said. Minimum wage increases are expected to cost Brookdale $2.5 million in 2017, she said.

To aid in employee retention, Brookdale is adjusting compensation where appropriate, simplifying some management roles and adding support staff to “lighten the burden” for key positions, Smith said. “We've made progress in lowering turnover, but we certainly have room to continue to improve,” he added.

Compensation costs are expected to increase 5.5% to 6% in 2017, Baier said.

Smith, however, said that he believes that 2017 represents the “apex” of labor pressure for Brookdale and the seniors housing and care industry.

Ancillary services

Brookdale continued to close outpatient clinics at its communities in 2016 as it focuses its ancillary services efforts on home health and hospice care.

The company closed clinics in 510 out of 685 communities by Dec. 31, Baier said, adding that those clinics had produced approximately $28 million of ancillary revenue in 2016.

Brookdale believes that home health and hospice care represent opportunities for growth, Smith said.

“We think the ability to provide those services in a seamlessly coordinated way within our communities and where we have geographic concentration out into the general communities at large, we think that's a big, competitive differentiator for our business, and we think it's actually going to become a growing differentiator as the industry better interfaces with the balance of the post-acute system as well as the healthcare system generally,” he said. “We think it's a differentiator to our customers, but we also think it will be a differentiator to those other participants in the healthcare system, who are all going to be looking for ways to get better-quality outcomes for seniors as they age, at a lower cost. And we think that senior living, coupled with a home health and hospice program, that that's a big differentiator for us that, frankly, we don't think other people can emulate, at least at scale.”

Read more about Brookdale's latest earnings report here.

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