Next Brookdale CEO talks turnaround after company rejects takeover bid
"I'm very excited," Cindy Baier told McKnight's Senior Living about her new role as CEO of Brookdale.
As Lucinda “Cindy” Baier prepares to lead Brookdale Senior Living, the company's short-term turnaround plans include selling 30 communities, cutting $25 million in general and administrative expenses, increasing automation and the use technology where possible, and moving more decisions to the community level when deemed appropriate.
Underlying all operating decisions at the country's largest senior living provider, Baier told McKnight's Senior Living, will be a focus on three pillars: employees, residents and their families, and shareholders.
“There's a lot of our strategy that relates to simplifying and streamlining our business,” she said. “We're moving from a national focus to a local focus, which leverages our scale.”
Baier was named successor to T. Andrew “Andy” Smith as president, CEO and board member on Thursday morning in advance of Brookdale's fourth-quarter and all-year 2017 earnings call. Her promotion — she has been serving as Brookdale's chief financial officer since 2015 — is effective Feb. 28. She will continue in the role of CFO while the company searches for her replacement.
|Fourth-quarter and full-year 2017 results
See Brookdale's press release about fourth-quarter and full-year 2017 results here.
The move comes as the Brentwood, TN-based company ends a strategic review process that began in February 2017. Baier said that Brookdale's board “looked at the full range of strategic alternatives,” although she couldn't provide details. “Let's just say that they explored a number of options and a wide variety of options,” she said.
During the earnings call Thursday morning, Lee Wielansky, who has been named non-executive chairman of Brookdale, said the board recently rejected a $9-per-share offer for the company.
“The board did not believe this offer was acceptable and believed the company could ultimately create more value for our shareholders by driving higher performance as a public company under new leadership,” he said. The board previously had “vigorously” pursued other signs of interest involving more money, although none ultimately resulted in “firm offers,” Wielansky added.
“Although the formal process has concluded, as always, we are committed to evaluating all opportunities to enhance shareholder value and will continue to do so,” he said.
Wielansky is replacing Executive Chairman Daniel Decker, who is retiring March 1 now that the review process has concluded. Also leaving the company will be Bryan Richardson, executive vice president and chief administrative officer, and board member William G. Petty Jr.
Richardson's departure, Baier said, was part of the company's efforts to cut costs and evolve into a “flatter” organization. The company does not plan to replace him.
“Bryan has been a key part of Brookdale's success over the years, and we will miss him dearly,” she said. “At the same time, we think that by better leveraging our executive team, we can reinvest closer to our residents, which is what we're really trying to do.”
Wielansky said that Baier was given the task of formulating a turnaround strategy for Brookdale over the past several months. “She has been working directly with our operations, sales, marketing and other leadership teams to plan to being implementing tactics to improve our results,” he said.
The resulting “robust roadmap,” Baier said, includes moving some decisions related to hiring, training, marketing, advertising and other areas to the community level.
“We are delivering services person-to-person 24 hours a day, seven days a week, 365 days a year,” she said. “So making as many decisions as we can as close to the community and as close to the customer as possible is a key priority for us.”
Brookdale will continue to take advantage of its scale where it makes sense to do so, such as in the area of programming and ensuring overall quality of the workforce, Baier said, but strategies in other areas may be appropriate for one market but not another.
To improve employee retention, the company plans to increase total compensation costs 5.5% to 6% on a year-over-year basis, she said. “That's well above the cost of inflation, and it includes not only increases in salaries and wages but also better benefits for our people,” Baier added.
The company already reported some success in the area of retention on Thursday, with voluntary turnover in three community director positions declining by 19% in both the fourth quarter and the full year. “What we're really trying to do is to make sure we're investing in our associates who take care of our residents so they can do a better job of enriching the lives of those we serve,” Baier said.
Those residents, in turn, will serve as referral sources, the company hopes.
Also to improve employee job satisfaction, Brookdale plans to improve orientation and training to help prevent new employees from becoming overwhelmed or frustrated, she said. And the company will continue efforts to reduce the “administrative burden” that often faces community-level directors, Baier added.
“We are taking to action to look at everything that we are doing to and for our communities and making sure that we are only doing those things that our executive directors, health and wellness directors and sales directors think add value,” she said. “Often, a department or a function will have a well-intentioned initiative, but it takes away from our primary focus of delivering quality care to our residents.”
To satisfy shareholders, Baier said, the company will plans to sell 30 communities this year, in addition to previously announced transactions, and expects to raise $250 million from the effort. “This may include some of our highest-performing communities where we don't see the same future growth potential as we see in other parts of our portfolio,” she told analysts and shareholders participating in the earnings call. “We also expect to continue pruning disadvantaged assets from our portfolio,” Baier added.
The company also plans to use automation and technology for repetitive tasks, to streamline processes and cut costs, she said. Brookdale already uses electronic medical records and is looking at tools to help with scheduling and accounts receivable, Baier said.
In 2018, the incoming CEO said, Brookdale expects challenges related to new supply, wage pressure, a tight labor market, lease escalators, rising interest rates and the “worst flu season in 20 years as it relates to seniors.” She said she plans to continue to study the business, meet with real estate investment trust executives and others, and further refine Brookdale's near-term plans.
“2018 will be a tough year,” Baier predicted. “The changes that I outlined will be painful but necessary, and we will adapt as we learn.”
The company should return to year-over-year growth in 2019, she said.