Brookdale Senior Living (NYSE: BKD) has found home health to be its diamond in the rough in its latest quarterly earnings. As the largest senior housing provider in the nation, Brookdale executives see the company’s crossover as one of the top 10 largest home health providers to be a key distinction from its peers.
Brookdale, which is rumored to possibly be acquired by private equity firm Blackstone Group, is struggling operationally in other parts of its business. The company showed a bleak fourth quarter with a net quarterly loss of $268.6 million, which is an increase of more than 50% year-over-year.
But the home health segment of Brookdale, which is grouped in its ancillary services segment along with outpatient therapy and hospice, grew in 2016 despite corporate raids in Florida and hurricane activity in the state, Cindy Baier, chief financial officer at Brookdale, said in a fourth quarter earnings call Tuesday.
“Ancillary services revenue is expected to grow from $460 million to $480 million as volume increases in home health offset home health reimbursement rate decreases and the streamlining of our outpatient therapy,” Baier said.
Brookdale is using this momentum to grow its ancillary services segment even more.
“We think the home health business is a growth business,” Andy Smith, CEO of Brookdale, said during the earnings call. “We think the ability to provide those services [home health and hospice] in a seamlessly coordinated way within our communities and where we have geographic concentration out into the general communities at large, we think that’s a big competitive differentiator for our business.”
To Sell or Not To Sell?
Home health was a bright spot in the earnings, but the jury is still out on whether a potential buyer would keep or sell the ancillary services business in a potential takeover of Brookdale.
“I can see the value in the home health business and where a company would want to capture that, but it’s not an essential core business,” Stifel analyst Chad Vanacore told Home Health Care News. “[They] could sell it and use those funds to pay down debt incurred in the acquisition. I know from Kindred [Healthcare] (NYSE: KND) and plenty of other operators that the home health business itself is valuable and growing. ”
One reason Brookdale’s home health segment may be seeing success is its namesake, which has massive name recognition throughout the senior housing industry and larger health care system.
It makes the company a one-stop shop when it comes to senior care, Brian Tanquilut, analyst at investment bank Jefferies, explained to Home Health Care News. In a potential acquisition, a buyer might want to sell or spin off the home health business into another entity to monetize its strength.
“On the flip side, you have a fairly valuable asset with that home health business, and most investors [are] really giving value to it. A lot of people look at Brookdale as a real estate transaction more than anything else,” he said. “You have an asset you can monetize—home health valuations are fairly healthy for transactions, and this is a scaled asset with a big presence in Florida. I can see how they could generate a lot of shareholder value by monetizing it.”
Brookdale may be right on its self-assessment as a differentiator in the home health field, though other senior living providers are starting to add these services lines, as well.
It’s a value proposition that can’t be replicated, Smith said. This is because no other provider does close to the scale that Brookdale has with 1,100 senior living properties in markets nationwide.
“Generally, we think it’s [home health] a differentiator into our customers, but we also think it will be a differentiator to those other participants in the health care system who are all going to be looking for ways to get better quality outcomes for seniors as they age at a lower cost,” Smith explained.
Brookdale’s shares were up a slight 0.67% to $14.94 as of market close on Tuesday, following the earnings data and call.
Written by Alana Stramowski, with reporting by Amy Baxter and Tim Mullaney
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