After falling short on Q3 projections and seeing revenue dip year over year, Brookdale Senior Living (NYSE: BKD) is reportedly considering divesting its home health and hospice segments.
COVID-19’s impact on the company has created financial pressures that it hopes to mitigate, PEHub Reported Monday. Those pressures could feasibly be made up, in part, through a home health and hospice business sale when valuations remain at jaw-dropping highs.
The Brentwood, Tennessee-based aging services operator — which offers home health, hospice and outpatient therapy services to over 17,000 patients nationwide — is reportedly being provided with guidance by Bank of America and exploring various options. Those options include finding a private equity buyer, a pure-play strategy buyer or even a combination of the two, according to PEHub.
The company declined to comment on the rumor when contacted by Home Health Care News, citing a standing policy not to engage in dealmaking speculation.
Brookdale is a leading operator of senior living communities in the U.S. The company operates and manages independent living, assisted living, memory care and continuing care retirement communities (CCRCs), totaling 726 communities spanning 44 states.
Overall, Brookdale’s total revenue totaled $706 million in Q3 2020, down 13.3% compared to $815 million in Q3 2019. The company estimated that $71 million was lost in revenue in Q3 due to COVID-19.
Likewise, its home health revenues had been down. In 2019, home health accounted for $327 million in revenue for Brookdale. Through Q3 of 2020, revenues had not yet hit $185 million.
Still, its home health and hospice business was strong enough to begin considering this sort of move. Brookdale is the largest senior living provider in the United States and also the sixth-largest home health provider, data from LexisNexis suggests.
“Brookdale has significant assets, [including] owned real estate, home health and hospice business,” investment banking company Jefferies wrote in a note after Brookdale’s Q3 earnings call. “Those are able to be monetized and could unlock shareholder value.”
But total home health revenue in Q3 2020 was just over $61 million, which was down 23.6% compared to Q3 2019. Its average daily census went from 15,357 in Q3 2019 to 13,146 in over the same time period this year.
In the same note, Jefferies also commented that “monetizing the [home health and hospice] assets would be an effective strategic decision” to counteract the cash burn due to COVID-19.
Brookdale isn’t alone, if the rumored reports hold true.
Encompass Health Corp. (NYSE: EHC) — the fourth-largest home health provider in the U.S., according to LexisNexis — announced last week that it was “exploring strategic alternatives” for its home health and hospice business.
Birmingham, Alabama-based Enccompass Health’s home health and hospice segments brought in $274.5 million in revenue over Q3 2020 and over $1 billion in all of 2019, according to company financial filings. Overall, its U.S. footprint includes 242 home health locations and 83 hospice locations.
“The strategy in terms of building a coordinated post-acute care provider — that is, with IRF, home health and hospice — I think has actually been successful,” William Blair analyst Matt Larew said during HHCN’s Capital+Strategy event. “I think Encompass Health has done a really nice job.”
Brookdale hasn’t gone public with any of its strategies yet, and there’s likely going to be some hurdles, if a sale is the goal.
For one, Brookdale’s home health and hospice line is tied to its senior living side of the business, and its revenues are affected by that built-in relationship.
The company has also been the beneficiary of over $100 million in federal and state relief since the beginning of the public health emergency, including a whopping $67.5 million from the U.S. Department of Health and Human Services (HHS) via the Provider Relief Fund.
Monday isn’t the first time rumors have swirled around a sale of Brookdale’s home health and hospice operations. In May 2019, Stephens analyst Dana Hambly also suggested a sale could make sense due to the demand for quality in-home care assets.
“Given the valuations in the home health and hospice industries, we believe Brookdale has explored strategic alternatives for the health care services segment,” Hambly told HHCN at the time. “With the home health business seemingly on the upswing and the steady growth in the hospice business, this is now a more attractive asset than it was 12 months ago.”
While home health has been an up-and-down business for Brookdale, the company’s hospice operations have consistently performed well.