So far, so good, with everyone’s third quarter earnings results. And that is the way it should be, since the third quarter has almost always been the best quarter, at least as far as occupancy is concerned. For Brookdale Senior Living, it was no different, with seven months in a row of increased occupancy. The question is, will that be enough?
We have to admit (once again) that there are few voices as soothing as Brookdale’s CEO Cindy Baier when delivering quarterly updates, whether good, bad or ugly. But for the third quarter it was mostly good news. Call it steady as it goes, as most financial and operating metrics are still on the rise, except for sequential moveouts, which declined by 6%, which is a good thing.
Here are some of the highlights. On a year-over-year basis, same-community resident fee revenue was up 10.8%, weighted average occupancy was up 140 basis points to 77.9%, and RevPOR was up 8.9% to $5,892. The multiplier effect of increasing RevPOR and census at the same time can be explosive, but Brookdale does need to get the occupancy number up. Pretty much all of that increase came in the strong third quarter. If they can get consistent increases in at least two additional quarters, they will be well on their way to 80% and higher. And at this point, almost all occupancy increases should be profitable, even with some discounting.
On a consolidated basis, adjusted EBITDA plummeted 29.4% year over year because of the sharp reduction in government financial assistance, which has mostly gone away by now. Weighted average occupancy was up 110 basis points sequentially and 120 basis points year over year, not too different from the same-community results. One negative for consolidated results was that month-end census in October dropped by 20 basis points to 79.5%.
The company has 672 communities in 41 states, and it looks like that total will not drop as much as expected because they had some key discussions with LTC Properties. Brookdale had been leasing 35 communities from LTC, which were set to expire at the end of this year. BKD management decided not to renew, and LTC then started the process of finding new tenants or selling them.
In August, the two entities came to an agreement to establish a new lease for 10 of the properties, and then in October added seven more to that for a total of 17. Under the new lease, Brookdale has an option to acquire all of them at what they consider to be a “good price” before the lease expires at the end of 2029. In addition, LTC will be providing some capex financing. This is what we call an alignment of interests, and they will be working collaboratively on finding new homes for the remaining 18 communities before the existing lease expires at the end of this year.
On the debt side, between cash on hand and potential agency debt, management is not worried about 2024 maturities. But then there are those 2025 leases.
Investors liked the news, sending the shares up by 9.7% before settling down for a gain of 7.0% at the close. Not too shabby.
