Brookdale Senior Living reported its June occupancy levels this week, and while there were increases, those increases lag the increases for the overall industry, and absolute levels of occupancy also continue to lag behind the industry.
Weighted average June occupancy was 76.8%, 20 basis points above May but 10 basis points below the occupancy rate last September. That is not progress, even acknowledging that the first half of the year is usually bad for census. Management observed that this was a 160-basis point increase over June 2022. While looking back a year is nice, let’s hope when they do it again in October that they are not showing a small 50-basis point increase year over year. That would be depressing because of the low starting point.
Month-end occupancy in June was 78.2%, or exactly the same as the end of October 2022. That’s eight months of blood, sweat and tears and nothing to show for it. In the NIC Map primary markets, second quarter occupancy for assisted living and independent living combined was 83.7%. Obviously, some companies are doing much better than this, but Brookdale is not one of them. And companies are now starting to report that they are now above pre-pandemic levels of early 2020. They need to get to those pre pre-pandemic levels to really return to the margins and cash flow they need.
We do not know what the market was expecting, but on a day that the overall markets were rallying on inflation news, Brookdale’s shares initially plunged by 14%, but gained a little of that back by the end of the day. While we believe that was an excessive price decline, since at least census did not drop, perhaps investors are tired of waiting for Brookdale to catch up. Anyone we talk to wants Brookdale to succeed, because they are such an important presence for the industry, but we keep waiting.
We believe a big problem is the sales and marketing department. Yes, it may be hard to sell when the building is more than 30 years old, but Brookdale is not alone with this. We have heard from one friendly regional operator who acknowledges they micromanage their portfolio, that when they mystery shop the local properties when making an acquisition, Brookdale is the one that usually does not return the call. Yes, perhaps the sales staff just “knows” it is a fake lead, but we doubt it. Traci Bild would be shuttering. Welltower CEO Shankh Mitra complained about this a little more than a year ago when several of Welltower’s managers failed to follow up on leads. And they all should be using Second Act Financial Services to help customers finance their move-ins.
Brookdale CEO Cindy Baier and the board of directors need to be more on top of this problem. It is the only way they will be able to dig themselves out of their hole, other than maybe reducing their debt and re-negotiating more leases. The directors earn an average of $265,000 in annual compensation, and Ms. Baier received total compensation of $7.3 million last year, most of which was Brookdale stock, which does help align interests. But shareholders are still not getting a return on “that” investment. And management has been reluctant to replace board members with others who could maybe be of more direct help, and who have the industry knowledge and expertise that is required, now more than ever (hint, hint).
The problem is the portion of Brookdale’s portfolio that is stagnating below 70%, representing 199 communities, or 31% of the total. These are the ones that need to be fixed, and it would be nice to know what they are doing about it. If it is location and age, this will be difficult, other than maybe having a serious talk with the landlord or lender for these communities. One-third of Brookdale’s communities are at 85% or better, and most of those are better than 90%.
Once again, are they performing because of the location and age? Or is local management doing something different, and better, at these communities to make them succeed? Is it the sales staff, and if so, what can be learned? We don’t know, but management and the board should take a deep dive property by property and figure it out. Maybe they have (we hope so), and have thrown up their hands on the constant underperformers, concluding nothing can be done. But even those tired communities usually can be fixed by someone. Maybe not Brookdale.
