We are not sure why investors continue to think there may be some break-through news every quarter when the big seniors housing companies report earnings. This has been, and is going to continue to be, a slog to get through the mess created by too much development exacerbated by labor problems.
Brookdale Senior Living’s management put a positive spin on the quarter, such as associate turnover improving by 5% compared with last year, and same-community move-ins showing positive year-over-year growth. That is all good news, but it will not be enough to pacify shareholders who want to see much more to move the valuation needle. And while some categories of occupancy showed improvement, such as same-community IL occupancy having back-to-back quarters of 100+ basis point increases, overall, census improvement is still a tough slog. And, it has not helped that labor cost growth continues to outpace revenue growth. But they are not alone.
Prior to its earnings release, shares of Capital Senior Living had a bump up in price, which seemed to indicate someone thought there would be some good news coming. Maybe there was hope that CSU would also have some of those little positive changes experienced by Brookdale. It was not to be. Same-community occupancy declined by 80 basis points sequentially and by 190 basis points year over year to 83.6%. In short, there was little good news.
In an all-too-common story these days, operating expenses are increasing year over year, while revenues are decreasing. That is a tough strangle hold to escape from. We received one email from a shareholder who stated that it “looks like they picked the wrong CEO.” While we sympathize with shareholders as they watched their investment crash over the years, after just seven months on the job we think it is a little premature to make these sorts of judgements. Will Kim Lody and her team be able to turn things around? By 2025, probably. By the end of 2020? As we said, this is a long, tough slog, reflected in the 15%+ drop in the share price in the days after the earnings release.