Brookdale Senior Living (NYSE: BKD) likely will be dealing with operational challenges throughout the next year, before its turnaround efforts start to bear more substantial fruit in 2020.
The stock price for Brentwood, Tennessee-based Brookdale slumped over 11% in trading Monday after RBC Capital Markets analyst Frank Morgan issued further guidance based on this timeline. Morgan revised his target price for Brookdale stock from $9 to $8 despite “tangible results” from its restructuring efforts.
Morgan previously wrote that Brookdale would not see improvement in its performance until fiscal year 2019.
Brookdale is one of the largest home health and hospice providers in the nation and is by far the largest owner and operator of senior housing communities. After seeing its share price steadily erode following a mega-merger with rival Emeritus Corp. in 2015, Brookdale ended a strategic review and appointed Cindy Baier as its new CEO last February. Since that time, the company has been focused on an operational turnaround; though primarily focused on its senior housing business, its ancillary services segment has played a role as well. Baier has been bullish on hospice, in particular.
In Q3 2018, Brookdale posted an adjusted EBITDA of $126.4 million, nearly $10 million below RBC’s projections. That included a $1.7 million hit from Hurricane Florence; there were 34 home health locations and 240 senior housing communities in regions affected by the storm. The Q3 financials also reflect occupancy pressure in a senior housing market dealing with oversupply and rising labor costs, Morgan wrote. Brookdale’s consolidated revenue fell to $1.12 billion in Q3, a 4.9% decline year over year, as a result of real estate dispositions over the past 12 months.
Home health revenues were also down in Q3, though hospice continued to perform well.
Morgan pushed back Brookdale’s horizon specifically because the provider will be dealing with its senior housing-related operational challenges over the next year. On the home health front, the forthcoming Patient-Driven Groupings Model (PDGM) also presents a challenge, as Brookdale’s therapy mix is above industry averages, Morgan pointed out. The company is trying to adjust its patient mix to avoid reimbursement cuts related to therapy in PDGM.
Morgan agreed with Brookdale CEO Cindy Baier’s assessment that the company’s turnaround would hinge on improving its senior housing operations, and suggested the foundation is being laid. He cited the company’s noticeable investments in local operations and, although Baier cautioned that its occupancy struggles would continue into next year, Brookdale’s 1.3% year-over-year increase in same-store revenue per operating room (RevPOR) was a sign it would not need to rely on future rent concessions as a long-term strategy to increase occupancy.
Brookdale’s investment in local operations is also a positive sign. The retention rate among community executives is over 70%, Morgan noted. Recent organizational changes also helped drive more high-quality leads were up 7% in Q3 year-over-year, and first visits saw similar improvements.
Brookdale stock ended Monday trading at $7.67/share.