Occupancy and revenue gains pushed Brookdale Senior Living’s (NYSE: BKD) operating margins closer to pre-pandemic totals in the first quarter of this year, with CEO Cindy Baier noting the company is seeing its “highest reported adjusted margin rate since the initial impact of the pandemic.”
The Brentwood, Tennessee-based senior living operator is building on the momentum it has gained in recent quarters, with “significant runway for future revenue and operating income growth,” Baier said during the call with investors and analysts Wednesday.
As of the first quarter of the year, the company’s adjusted operating margin registered at 27.6%, For comparison, the company’s adjusted operating margin for its senior housing services was 25.6% in the same quarter in 2023, according to financial documents.
Looking ahead, she sees more opportunities to gain occupancy and bolster revenue, and in effect grow the company’s operating margins higher this year and beyond.
“We are keenly focused on the incredible opportunity ahead of us from recovering our pre-pandemic occupancy and margins,” Baier said during the call. “Our consistent forward progress each quarter reinforces my confidence that the plans we are executing, combined with industry supply and demand dynamics.”
Brookdale stock closed at $7, down 4.9% from the previous close.
Factors of margin expansion
Two major factors, occupancy and average resident rate growth, helped the company grow margins in the first quarter of the year.
Average weighted occupancy for Brookdale registered at 77.9 % in the first quarter of the year, an improvement over the first quarter of 2023, when the same total was 76.3%.Move-ins in the first quarter of 2024 were 7.5% higher than pre-pandemic levels, according to Baier.
While the move-in amounts weren’t quite as high as they were in the first quarter last year, Baier said she is “still pleased with the strong demand.” Although the company did see a sequential decline in occupancy from the fourth quarter of 2023 to 1Q24 – decreasing slightly to 77.9%, from 78.4% – CFO Dawn Kussow noted that result was “meaningfully better than normal pre-pandemic seasonality for this period.”
Information from Brookdale indicates that at the close of the quarter, 73% of its 622 communities had a weighted average occupancy of 70% or greater, with 12% being higher than 95%.
Revenue per occupied room (RevPOR) ticked up to $6,228 in the first quarter, representing a 4.4% gain over the same period in 2023.
The company’s leaders also expect to see “sequential increases” for revenue per available room (RevPAR) going into the second quarter of the year that “represents favorable performance when compared to normal pre-pandemic seasonality” for the period, Kussow said.
Additionally, Brookdale’s total liquidity as of March 31 was $355 million compared to the $341 million of 2023’s fourth quarter, and the company doesn’t have any mortgage debt maturities without extension options until September 2025.
“We believe that with our continued expected occupancy recovery as we build upon our strong occupancy start to this year, our year-over-year RevPAR growth rate will further improve throughout the year,” Kussow said.
Baier noted Brookdale’s focus since the start of the pandemic has been the recovery of cash flow for the business, with a focus on the costs for services and the costs that went into “making a resident experience differentiated” from the competition.
Looking ahead, Baier said the company will continue focusing on resident satisfaction and employee retention as ways to drive better performance, and the company is working to improve both controllable and uncontrollable move out factors.
The rate increase put out at the beginning of the year was more aggressive than historical pre-pandemic standards, but lower than it was in 2023, Baier told investors, noting it played a factor in reducing move outs.
“We’re pleased with our progress, but we have a long way to go in terms of getting back to pre-pandemic occupancy and margins and beyond,” Baier said. “There’s still a lot of opportunity in front of us, backed by strong supply and demand fundamentals.”
Also aiding the company’s margin expansion is its HealthPlus program, under which nurses coordinate care for residents with their overall health outcomes in mind.
Brookdale is also not on a path of continued growth for the time being, with Baier saying more emphasis is being placed on recovery within the portfolio and expanding its Brookdale Health Plus program to 130 communities by the end of the year from the 50 it is currently in.
“Over the longer term … we will look to increase the density in the markets where we think there’s growth and where we’ve got a strong preference,” Baier said.
At the end of the day, Baier noted that despite the recent progress, the company has “a long way to go in terms of getting back to pre-pandemic occupancy and margins and beyond.”
But “that’s why it’s such an exciting time … because we’ve demonstrated that we can execute our plan successfully,” she said.
Brookdale’s staffing playbook
Among the additional factors leading to improved margins for Brookdale was an improvement in employee turnover and retention and the continued elimination of agency labor use.
According to Baier, among the positive changes to staffing were enhancements to the executive director job description to “make sure they were driving sales,” and the retention has led to better profitability as a whole.
“We know that when our executive director has been in place at least two years, that community has better profitability,” Baier said. “We also know that [when] we’ve got stability in our leadership team, that translates into the stability of the community hourly associates.”
Additional focus has been placed on the health and wellness director and sales director roles, alongside an “enhanced onboarding process” for associates. Because of these changes, turnover at the executive director level through the first quarter has reached a 70% retention rate.
That stability then translates into better relationships with and more effective care for residents. When those factors are aligned, Baier said it encourages residents to bring in friends to live in communities with them and stay in communities for longer.
“We have had a playbook that is working quite effectively,” she said. “I think that we are going to continue to sort of drill down on the training that we did last year on the Brookdale way.”
Looking ahead, the remainder of 2024 will be seeing a “more engaging and personalized” approach to training for hourly associates.
“It’s still early, but we are excited about this opportunity and the impact it will have for our associates productivity and growth in their career opportunities,” Baier said.
