We were hoping that maybe, just maybe, Brookdale Senior Living would post a “breakout” fourth quarter earnings report. They didn’t. But the alternative, a negative surprise, did not happen either. Phew.
We have to hand it to CEO Cindy Baier, who always sounds so confident, positive, mission-directed and knowledgeable, whether on stage or on an earnings call. You almost want to hug her after she presents. Perhaps that is why the Board continues to support her. The problem is that shareholders have not bought into her and the company’s performance, which is demonstrated in the share price, which remains in the doldrums. However, shareholders may be beginning to buy into the message, or at least the recent results and forecasts, initially sending the share price up by 16.9% in the first 30 minutes of trading after the fourth quarter earnings results were released. We do not, however, think that level of increase will last when everything sinks in.
So, what happened in the fourth quarter? Total same community seniors housing occupancy increased by 70 basis points sequentially, and 370 basis points year over year. The adjusted operating margin was 21.0%, a 120-basis point sequential increase, but the same increase year over year. That means that all the increase came in the fourth quarter, at least mathematically.
One thing we do not like is management comparing Brookdale’s census increase with what is reported by NIC MAP, with Brookdale showing higher increases. The problem is that it is not quite apples to apples, since the NIC MAP market group did not drop as low as Brookdale during the pandemic, which hit a low of 69.4% in March 2021, so Brookdale has had to make up more ground. Consequently, Brookdale needs to post better quarterly increases than the overall market just to catch up to the rest of the sector.
Breaking it down by unit type, and all of the following is for same-community results, independent living fourth quarter weighted average occupancy was 79.0%, an 80-bsais point sequential increase and 390 basis points year over year. The adjusted operating margin (removing government financial support) was 29.0%, up 20 basis points sequentially, but down 190 basis points year over year. RevPOR increased 3.4% year over year.
Assisted living occupancy posted a weighted average of 76.9%, up 80 basis points sequentially, and up 390 basis points year over year. The adjusted operating margin was 19.9%, up 150 basis points sequentially and 250 basis points year over year. RevPOR increased 5.1% year over year.
On the labor front, in their assisted living communities, which represent a significant majority of the company’s total units, sequential labor expense increased slightly by 0.15%, and by 5.15% year over year. Given the state of the labor market, that is pretty good. From December 2021 to December 2022, the company’s overall contract labor expense plunged by 80%, which we are sure is a relief to management, and presumably will result in better care. During 2022, Brookdale’s workforce increased by 15% with about 5,000 net new hires. It would be great to find out where they came from, whether from inside or outside the industry.
In the much smaller CCRC business, fourth quarter weighted average occupancy was 74.4%, up 50 basis points sequentially and 160 basis points year over year. The adjusted operating margin increased by 170 basis points to 12.8% sequentially.
On the negative side, January’s weighted average occupancy was 76.6%, a 40-basis point sequential decline and the lowest since August 2022. Month-end occupancy was 77.6%. a 50-basis point sequential decline and also the lowest since August 2022. This occurred with a flu and COVID season being much worse than initially predicted. We always said increasing census from the pandemic lows would be a two steps forward, one step backward scenario for the sector over a several-year period. But Brookdale will not be alone in this regard.
