Brookdale Senior Living released its fourth quarter and full-year earnings results this week, and all we can say is that the improvements, while welcomed, are slow and steady. Management has had a lot on its plate the past 18 months or so in a post-pandemic environment, but things like occupancy are moving up, but not as fast as for others. The problem as we have seen and vocalized for several years, is that it takes a long time to move a battleship in a new direction. And as the largest senior living provider in the country, it was a very large battleship to move. Management has successfully put in motion most of the necessary changes for the future, but now comes the execution part, and investors will be watching.
First, let’s talk about census. Same-community weighted average occupancy increased in the fourth quarter by 90 basis points compared with a year ago to 79.5%, and sequentially it increased by 50 basis points. On a consolidated basis, weighted average occupancy increased by 10 basis points in the fourth quarter to 79.3%, while month-end occupancy remained the same at 80.5% in December, the same as in September 2024. Weighted average occupancy in January 2025 decreased by 10 basis points sequentially and month-end occupancy increased by 10 basis points. As you know, the winter months are the worst for census, and this has been the worst flu season in six years, so the results were not so bad.
For Brookdale, the good news is that month-end occupancy has now rested above 80% for six straight months, which is quite an accomplishment given the past few years. The bad news is that over the past two years, census has increased by just 300 basis points, much lower than the competition, as measured by NIC MAP statistics and by the performance of the Big Two REITs and their SHOP portfolios, Welltower and Ventas. Both REITs posted year-over-year census growth of 310 basis points.
Basically, their operators accomplished a census growth rate in one year that took Brookdale two years. And in seven months, from July 2024 to January 2025, Brookdale’s month-end occupancy increased by just 70 basis points on a consolidated basis. We expect these numbers will start to improve dramatically once Brookdale is out of the 55 communities for which it is not renewing the leases with Ventas, which are underperforming the larger group that will continue to be leased from Ventas with new terms in a deal negotiated late last year. Again, as the portfolio is normalized, investors will be looking for improved consolidated results.
Management likes to remind investors that there has been little to no new development in most of their markets, which is why we have frequently questioned why census growth has not been more robust. With Brookdale’s capital structure improvements and lease negotiations basically completed, there should be plenty of time to focus on operations. It will be great to see their reported numbers later this year without the 55 lease terminated properties in the results. That will show investors what they can expect to see moving forward.
Brookdale has made the decision to pursue a lower-acuity model in many of their communities. This will have many benefits, but it is not without risk. The average age of its residents has already declined by six months, which increases the average length of stay and the general health of their resident population. As a result, however, RevPOR growth will decline with smaller rate increases and lower acuity levels. One benefit will be on the labor front with lower acuity, but the negative may be that the customer could be less need driven, and that means there are more alternatives.
Even though 2024 move-ins were 8% above pre-pandemic levels, they were below management’s expectations. However, fourth quarter move-ins were the best in eight years. We would have expected that because eight years ago there was the beginning of the industry census decline because of overdevelopment, which was then followed by the pandemic, a terrible double whammy. Move-ins should continue to do well as long as development does not ramp up, something no one is expecting in the near term. But Brookdale does not have many new communities in its markets, and our suspicion is that their recovery from the pandemic has been slower than others because of the age of their communities. Renovation dollars will help, but it is not always the panacea that some hope for.
Some causes for concern include the slow decline in same-community adjusted operating margin during 2024 as well as RevPOR. The margin dropped from 27.6% in the first quarter to 27.4% in the second, then to 26.6% and 26.1% in the third and fourth quarters, respectively. RevPOR went from $6,223 in the first quarter to $6,181 in the second quarter, then $6,159 to $6,121 in the third and fourth quarters, respectively. With lower acuity residents, we may not see a turnaround in these numbers any time soon.
One of management’s strategies, which we have agreed with, is to increase the percentage of their properties that they own as opposed to lease and manage. As of December 31, 2024, the company owned 58.5% of its units, and that percentage will increase once those 55 Ventas- leased communities are terminated later this year. The total number of communities under management has declined from just over 1,000 to “just” 647 today and will soon drop to below 600.
One risk of this transition is that as real estate ownership increases, the company gets back on the radar of activist investors who may see an opportunity. This is especially true with the stock price still quite low. But the key will be how the company does with its low-occupancy communities. At the end of the year, 35% of the communities (213) were still below 75% occupancy, and of those, 24% (147) were below 70%. Getting those to 80% or higher would be a game changer, for management as well as investors. We are not holding our breath even with the minimal development, because there must be a reason why these communities continue to suffer from lack of census growth, and those reasons may be insurmountable. Age of the buildings is an important consideration.
Brookdale’s share price dropped by 2.3% the morning after the earnings report was released, but then closed at $5.44, up 2.6%. Investors are still waiting for some breakthrough results. As for the activists? They may be waiting for the price to drop by 10% or 20% before they see an opportunity. Or they may just be waiting for better results. We all are.
