Not since the pandemic hit has Brookdale Senior Living provided guidance on adjusted EBITDA and RevPAR growth. It is something that has been missing for investors and analysts, but Brookdale was not alone in suspending guidance. It just became too difficult for anyone in the senior care business to predict with any amount of certainty what the next quarter or year would bring.
Full year adjusted EBITDA is projected to be between $240 million and $260 million, while RevPAR is expected to grow by 10% to 12% in 2022. Adjusted EBITDA in 2021 was $138.5 million, but $283.6 million in 2020. The good news is that this means management has more confidence with where their operations are going. We wonder whether others will follow suit.
Operations have definitely stabilized, but the momentum seems to have stalled. January month-end occupancy was 74.2%, the same as in September 2020 but slightly lower than in October (74.5%), November (74.3%) and December (74.5%). Yes, the first quarter of every year is usually bad for census, and January can often be the worst month, but it would have helped to have more census momentum going into 2022. Omicron probably did its work.
Weighted average occupancy in January (73.4%) was just 40 basis points higher than in September, but was down 20 basis points from December. Some may say that was better than expected for the time of year, but again, if we are going to get anywhere near stabilized occupancy it will take that much longer if we are still two steps forward, one step back. And, starting 2022 with sub-75% occupancy is not where Brookdale wanted to be.
In addition, 244 of its communities (38% of the total) are below 70% occupancy. This tells us that “stabilization” for the portfolio probably won’t happen until late in 2023, if that. Census has increased by just 400 basis points since the absolute bottom in the market late last winter, while we have seen 600- and 700-basis point increases from others since the depths of the census crisis. The March to July 2021 occupancy pick-up for the industry was the low-hanging fruit, so to speak,
Brookdale has made major strides in cleaning up its balance sheet, extending maturities on debt and lowering interest rates, but adjusted EDITDA in the fourth quarter ($35.8 million) is still less than the total interest expense ($48.1 million). Increasing unit rates will be important, but the key is increasing census. A 10% rate increase on empty beds does no one any good. Margins have been a mixed bag, with independent living adjusted EBITDA margin hitting its highest level (30.8%) since the third quarter of 2020, while assisted living (17.2%) in the fourth quarter was well below the third quarter (18.7%) and second quarter (19.5%). Year over year, however, the assisted living operating margin was up 160 basis points.
Moving a 679-community ship through still unsettled waters is not an easy task for anyone. The supply and cost of labor is painful for a company the size of Brookdale with all its needs. But the focus should be on census (duh) since the incremental cash flow on each unit filled is huge, despite the cost of labor. Each 100-basis point increase in census has the possibility of increasing annual cash flow by nearly $15 million to $20 million. Investors liked what they heard, sending the share price up by 20% in the morning of the earnings announcement. That was good news.
