Fierce competition and multiple hurricanes have eroded Brookdale Senior Living’s (NYSE: BKD) home health bottom line, but the provider sees opportunity in its burgeoning hospice business. The Brentwood, Tennessee-based company is the nation’s largest private-pay senior living provider and is also a major player in home health.
Brookdale’s ancillary services took a hit in the third quarter of 2017, with operating income falling to $9.8 million, a decrease of 32.8% compared with the third quarter of 2016. Furthermore, margins of ancillary services dropped from 12.5% in the third quarter of 2016 to 8.9% in the same period 2017.
Revenue for the consolidated senior housing portfolio was $812.3 million for the quarter, a decrease of 12.2% from the same time last year.
The decline in ancillary services was mostly due to lower home health volumes, primarily from the recent hurricane in Florida, according to Brookdale CFO Cindy Baier.
“The decrease in operating income was heavily impacted by the lost revenue days from the hurricane,” Baier said during the company’s Nov. 7 earnings call. “Since we elected to continue to pay our home health associates during the lost days, the impact of lost revenue fell to the bottom line.”
Another factor affecting Brookdale’s home health bottom line is the lingering aftereffects of what it called “corporate raids” last year. More than 20 associates from Brookdale’s community-based home health business in Florida, Nurse on Call Home Health Care, joined a competitor, and allegedly engaged in illegal activity that hurt the company in 2016.
The company has slowly recovered from those events, according to Brookdale President and CEO Andy Smith.
“When people competitively intrude and take sales folks and clinicians, it simply takes awhile to rehire, train, get on board new sales folks, new clinicians, and allow them time to rebuild the census you lost,” Smith said on Tuesday’s earnings call.
Hospice Growth
Despite lagging in home health, Baier said Brookdale is seeing decent growth in its hospice business. The provider recently purchased a hospice agency in Chicago, though it hasn’t yet publicly disclosed details of that acquisition.
Brookdale’s home health segment earned roughly $87.3 million in revenue during the third quarter of this year, while its hospice operation took in about $17.3 million, according to an investor presentation.
“In Chicago and throughout our hospice business, we’re growing very, very nicely,” Baier added.
Brookdale believes its home health business will regain its footing in the long term despite recent headwinds, she said.
Other home health providers, such as Lafayette, Louisiana-based LHC Group (Nasdaq: LHCG) and Baton Rouge-based Amedisys (Nasdaq: AMED) have spoken about adding hospice assets, especially in markets where they have an existing home health footprint, according to Jeffries analyst Jason Plagman.
“Hospice valuation multiples are generally higher due to hospice having a more positive reimbursement outlook compared to home health,” Plagman told Home Health Care News.
Silver Lining
Overall, Brookdale reported a GAAP net loss of $413.9 million for the third quarter of 2017, compared to a $51.7 million loss in the third quarter of 2016. Still, there are some positive signs for the future, Smith said during Tuesday’s call. For one, the company is seeing occupancy and customer satisfaction trending up at many of its senior living communities.
Brookdale also last week struck a “win-win” deal in which a major landlord, HCP Inc. (NYSE: HCP), agreed to waive some of its consent rights. In the deal, Irvine, California-based HCP reduced its Brookdale concentration from about 27% of cash NOI and interest income to about 15.7%.
The move is expected to lend more flexibility for Brookdale to pursue a potential takeover bid.
Beijing-based real estate and leisure firm Zhonghong Zhuoye Group Co Ltd, seemed prepared to buy Brookdale for $20 per share earlier this year, but the deal fell apart last month. Brookdale’s share price has tumbled since 2014, when it merged with rival Emeritus Corp. in a blockbuster transaction, and rumors have swirled this year that the company is a takeover target.
Though the provider hasn’t announced any similar transactions with its other real estate investment trust (REIT) landlords, Smith left the door open for such a thing Tuesday.
“We are in constant dialogue with all of our REIT partners to try to search for transactions, restructurings or amendments to lease-holds that work for them and work for us,” he said.
Brookdale’s stock slid about 14% on Tuesday, to $8.81 by the time the markets closed*.
* Update: Brookdale’s stock gained 8.7% on Wednesday to rest at $9.58 on news that shareholder Land & Buildings disclosed a $5 million share stake, which up from its previous stake of $3.2 million, according to SeekingAlpha.
Written by Tim Regan
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