Brookdale at Barclays Healthcare: Strategic Optimism Amid Recovery

On Tuesday, 11 March 2025, Brookdale Senior Living (NYSE: BKD) presented at the Barclays 27th Annual Global Healthcare Conference. The company highlighted its strategic recovery in occupancy and financial performance, while addressing challenges like labor costs and flu season impacts. CEO Cindy Baer and CFO Dawn Cuso expressed optimism for continued growth, supported by strong move-in trends and demographic shifts.

Key Takeaways

• Occupancy has improved by nearly 700 basis points over the past three years, with further growth expected in 2025.
• Revenue per available room (RevPAR) is 18% higher than in 2019, reflecting a robust financial recovery.
• The company is managing labor costs effectively, with a 13 percentage point improvement in associate turnover.
• Brookdale’s private pay model reduces exposure to regulatory changes, with 94% of revenue from private pay residents.
• The HealthPlus VPC program significantly improves resident health outcomes, with plans for expansion.

Financial Results

• Occupancy: Brookdale reported a recovery of nearly 700 basis points in occupancy, with February showing atypical growth. The company aims for 100 basis points of growth in 2025.
• RevPAR: Current RevPAR is 18% higher than in 2019, indicating strong profitability.
• Operating Income: Same-store operating income per unit is 8% higher than in 2019, demonstrating improved cash flow.
• Move-ins: Fourth-quarter move-ins were 8% above pre-pandemic levels, the highest since 2016.
• Free Cash Flow: Positive free cash flow was achieved in late 2024, with further improvements expected in 2025.

Operational Updates

• Marketing Strategy: Brookdale increased internal marketing spend to counter disruptions from third-party referrals, achieving better ROI.
• Labor Market: The company improved associate turnover by 13 percentage points from 2023 to 2024, focusing on culture and career development.
• Flu Season: Enhanced infection controls and vaccination clinics were implemented to address a challenging flu season.
• New Construction: A 60% decline in inventory since 2018, with an 89% decline in new starts near Brookdale communities.

Future Outlook

• Demographics: The aging baby boomer population is expected to boost demand, with 30% of residents currently under 80.
• Capital Deployment: Focus on revenue-enhancing CapEx projects funded by landlords, aiming to increase density and reduce leverage.
• Wage Inflation: Although moderating, wage inflation remains above pre-pandemic levels.
• Regulatory Environment: Brookdale expects less regulatory pressure under the new administration, benefiting the skilled nursing segment.

Q&A Highlights

• Occupancy Target: The company targets a 100 basis point increase in occupancy this year.
• Marketing Spend: Internal marketing efforts yielded better results than third-party referrals.
• Average Resident Age: The average age of new residents is 83, with a trend towards younger move-ins.
• Skilled Nursing: This segment represents approximately 2% of Brookdale’s business.

Readers are encouraged to refer to the full transcript for a detailed account of the conference call discussions.

Full transcript - Barclays 27th Annual Global Healthcare Conference:

Andrew Mach, Facilities and Managed Care Analyst, Barclays: Hi, good morning and welcome back to the Barclays Global Healthcare Conference. My name is Andrew Mach. I am the Facilities and Managed Care Analyst here at Barclays and I’m pleased to be joined on stage with Cindy Baer and Dawn Cuso, CEO and CFO of Brookdale. Welcome.

Cindy Baer, CEO, Brookdale: Thank you for having us.

Andrew Mach, Facilities and Managed Care Analyst, Barclays: Maybe to start for those in the audience that may not be familiar with Brookdale and the senior housing space, why don’t you give us a brief overview of the company and current state of affairs?

Cindy Baer, CEO, Brookdale: Thanks, Andrew. Again, thank you so much for having us. Brookdale is the nation’s largest senior living operator. We are a pure play in senior housing. We operate six fifty communities approximately in 41 states and we have the ability to serve about 58,000 residents.

About 70% of our portfolio is assisted living and memory care. And the reason that’s important is because as the aging population needs services, we’re perfectly positioned to do that. We are known for our clinical capabilities, industry leading clinical capabilities, as well as our innovative care models. You think about the residents that we serve, they have a greater need for services because of the chronic conditions that they have. There’s also a dramatic decline in the caregiver ratio.

So there aren’t as many daughters and sons to take care of mom and dad. And then the loneliness epidemic is really important and it gives, our communities give seniors a chance for connection. About 94% of our business is private pay, which leaves us less exposed to impacts from Medicare or Medicaid changes. And we have seen a lot of progress over the last several quarters in terms of improving our capital structure, which positions us for success as well as future cash flow growth. And our fourth quarter move ins provided very strong momentum coming into the new year.

And we expect that momentum to continue as we just released with our occupancy release yesterday.

Andrew Mach, Facilities and Managed Care Analyst, Barclays: Great. And on that occupancy recovery, I think you’ve recovered almost 700 basis points of occupancy over the last three years. Your 2025 outlook embeds continued improvement. What gives you confidence in that? And what are the early indications for occupancy to start there?

Maybe touch on some of those numbers in the release.

Dawn Cuso, CFO, Brookdale: Yes. I’ll start and thank you, Andrew. We put out our guidance for 2025. And when we thought about our occupancy guidance, there’s a couple of things I’ll point out. That guidance is based upon move ins and attrition rates that we saw.

We saw some improving attrition rates through 2024 and we carried that into 2025. We also had the third party referral disruption last year and we haven’t fully lapsed that. And so we baked that into our considerations for our guidance as well as the fact that we always have a flu season, but we’ve been seeing this is really the most challenging flu season since 2018. Now our infection control has been really promising through what we’ve seen so far, but certainly not through that entire flu season yet. And then of course the disruption or potential disruption with the Ventas transition.

So we’ll be transitioning 55 communities by the end of the year. And so there’s always a level of potential for disruption as you transition communities. So we thought about that as we thought through our occupancy guidance. Now what I’ll say about our guidance is we are really optimistic. We if you listen to our fourth quarter call, we had move ins that were 8% above pre pandemic levels.

And we also had the strongest the most number of move ins in the fourth quarter than we had since 2016, so very strong. And that carried through into January and like Cindy said, into February as well. Typically, you’ll see our occupancy, it will decline sequentially from fourth quarter into the first quarter. We saw only a 10 basis point decline in January occupancy. And then in February, we saw our occupancy grow, which we’ve never seen before.

And so we are really excited about that. And so why that’s important is because as you kind of make that turn and you have to get back the occupancy that you lost in the first quarter, We’ve really kind of accelerated that occupancy growth with Turning in the month of February. And then the last thing I’ll point out is, Cindy is talking about has talked about accelerated occupancy growth. If you look at our year over year occupancy between October, January and February, that occupancy growth really accelerated as our year over year growth in October was only 80 basis points. The fourth quarter was 100 basis points.

And then looking at our January growth, we’re 120 basis points and February ’1 hundred and ’40 basis points over prior year. So we are seeing that acceleration year over year.

Andrew Mach, Facilities and Managed Care Analyst, Barclays: Got it. And do you think that 100 basis points plus I know there wasn’t a formal occupancy target for the year. Are you comfortable with that 100 basis points up for the full year?

Dawn Cuso, CFO, Brookdale: Up for the full year, of course. Yes, of course.

Andrew Mach, Facilities and Managed Care Analyst, Barclays: And then you mentioned the strong February and the atypical kind of progression from January to February. What in your view is driving that? And we’d love to hear more color on that trend.

Dawn Cuso, CFO, Brookdale: Yes. I think what we’re seeing is just what we said is that we’ve been very focused on move ins and making sure that we’re getting move ins at the highest possible rate. And then that favorability in our attrition rate, we’re continuing to see in the month of February. So both on the move in and the move outside.

Cindy Baer, CEO, Brookdale: And just to add a little bit more color to that. If you think about what Brookdale does, we are really taking care of people who need care and connection. And so we’ve been very focused on resident satisfaction and we’ve seen our resident satisfaction improve. We’ve been very focused on our associates. And when you have associates who are with you for a longer period of time, they are more efficient in their roles, but they also build relationships with residents that improve resident satisfaction, reduce attrition.

And then I’m really proud of our marketing team for the work that they’ve done around the internal marketing spend. We had a third party disruption from lead sources last year, but we’ve more than overcome that and it’s really coming together nicely.

Andrew Mach, Facilities and Managed Care Analyst, Barclays: Right. And despite those occupancy gains, you’re still, I think, only a bit more than halfway back to your target of 84.5%. So there’s still a lot of runway there. Can you talk about the opportunities and challenges in achieving that 84.5%?

Cindy Baer, CEO, Brookdale: Sure. What’s the reasons that we put the 84.5% pre pandemic occupancy in our investor presentation was just to demonstrate sort of where we are relative to our pre pandemic levels. But I think it’s really important to know that we have more than recovered our 2019 RevPAR. Our RevPAR is actually 18% higher than it was in 2019. And importantly, on a per unit basis, our same store operating income is 8% higher.

So we’re showing that there’s still a lot of opportunities from rebuilding occupancy, but as it relates to profitability and the cash flow that comes through that we’ve really rebuilt that. And for us, it’s really always been around building cash flow as opposed to occupancy for occupancy sake. I love the position that we’re in because if you think about it, we have more opportunity for growth than our competition because we’ve been disciplined about how we’ve rebuilt occupancy. And when we put those units in service for residents as we continue to grow occupancy, there’ll be a nice flow through to improve both our RevPAR and our adjusted EBITDA.

Andrew Mach, Facilities and Managed Care Analyst, Barclays: Right. And occupancy recovery is so important. I think the natural question is like how much leverage will you get on your fixed cost structure? Can you comment on the fixed cost structure of the business and what every 100 basis points represents in terms of NOI?

Dawn Cuso, CFO, Brookdale: Yes. It’s certainly the senior housing industry is certainly inherently a fixed cost business. So you’re going to incur a certain amount of costs regardless of the number of residents in our community. But the important point is that there is a threshold there’s certainly a threshold with the occupancy levels where you’ve covered your fixed costs and then any incremental move in is going to have a significant amount of cash flow on the flow through. And so the result is as you continue to grow occupancy, you’re going to have that disproportionate impact of the cash flow.

And so we’ve demonstrated this as we’ve recovered with our communities by the growth of that occupancy. And then as we’re getting to that inflection point, certainly starting to see more of that disproportionate cash flow of our business. And of course, it’s going to vary by product type because if you think about kind of an AL product type versus an IL product type, your variable cost may only be food as opposed to maybe the labor component to that. And so it’s going to be varying there or even by the size of the community.

Andrew Mach, Facilities and Managed Care Analyst, Barclays: Got it. Understood. You mentioned earlier the third party paid referral disruption in 2024 that led to softer occupancy growth. Can you, one, maybe remind us what that issue was? And what’s the latest on how that’s tracking and how that impacts the outlook for 2025 as you anniversary some of those events?

Cindy Baer, CEO, Brookdale: Sure. Starting in March of twenty twenty four, we saw disruption of our two largest paid third party referral sources. And we recognized that that was something that we needed to address. So we took action to redeploy and increase our internal marketing spend. That has been incredibly successful in overcoming the weakness in the third party paid referral sources.

In the fourth quarter, we saw very strong growth in our move ins year over year. Where it stands is we have seen very strong improvement in one of the two paid third party referral sources, but we’re continuing to see disruption in the second. What’s important though is because of our increased internal marketing spend, we’re able to deliver more move ins despite that weakness. And so I think that really is a strong point for us. And I think that that demonstrates just the flexibility of our business.

We’ve had strong momentum in the fourth quarter. And as we just talked about, the momentum continued into both January and February with February being the best February occupancy build then that we’ve seen.

Andrew Mach, Facilities and Managed Care Analyst, Barclays: Got it. So you moved some of those marketing and spend dollars internally and you think you’re seeing even potentially even better ROI on those internal marketing spend dollars? Just how does that compare?

Cindy Baer, CEO, Brookdale: It’s more efficient for us to have internal marketing spend in terms of total cost. There’s a little bit of difference in the accounting, where if you spend money internally on marketing spend, so it’s expensed when you do the marketing. Whereas if somebody moves in, you amortize that cost over a year.

Andrew Mach, Facilities and Managed Care Analyst, Barclays: Got it. Okay. And then obviously, there’s a big demographic shift coming as baby boomers age through Medicare. What is the average age of new residents look like today? And how has that trended over the last five years or so?

Cindy Baer, CEO, Brookdale: So the average age of our new resident is 83. And it’s important to note that the age is different between product type. About 70% of our product is AL and memory care. And the person who moves into AL and memory care is nearly two years older on average when they move in. About 30 of our residents move in at age 80 or younger and the baby boomers are turning 80 this year.

We’ve seen a decrease in the average age of our residents at move in and that’s something that we’re very optimistic about.

Andrew Mach, Facilities and Managed Care Analyst, Barclays: Got it. It’s all occupancy you’ve seen the kind of recovery today. You don’t even attribute that much to the baby boomer growth yet. You’re just on the cusp of that. When do you think that’s really going to start to move the needle?

And I know you mentioned this year, but it’s a little bit older move ins. So I think first baby boomers are going to turn 80 in around 2025, ’20 ’20 ’6. But how when do you think it’s really going to start to move the needle on occupancy from a demand perspective?

Cindy Baer, CEO, Brookdale: I think the nice thing is that we are already outperforming our pre pandemic occupancy growth and we’re just on the early ages of the baby boomers. 30 percent of our residents who move in are younger than the age of 80. There’s a pretty wide dispersion of the ages when someone moves in. But I think that we are well set up for many years to come. And one of the things that I think about is our independent product line is seeing the benefit sooner than our assisted living and memory care.

And as the baby boomers continue to age, I think there’s many, many years of continued occupancy growth for us.

Andrew Mach, Facilities and Managed Care Analyst, Barclays: Got it. And then new construction and new starts have been steadily decreasing for the last several years, leading to lower inventories, better absorption and higher rents. Do you expect this to continue? Are you seeing greater signs for new construction following the recalibration of the excess supply in the market?

Dawn Cuso, CFO, Brookdale: We certainly expect it to continue. So if you think about the rising costs of the construction costs, the material costs, the labor costs, the interest rates, we’ve definitely seen, as you pointed out, the slowed construction since the pandemic. As a matter of fact, we’ve seen 60% decline in inventory since 2018. And then if you think a little bit closer to Brookdale within a twenty minute radius, we’ve seen a decline of 89% from its peak on new starts within our communities. So certainly something that we would expect to continue.

And if you think about even if the macro environment were to quickly shift, which we don’t think that it’s going to do, it takes about five years to get kind of a shovel in the ground and a community built where people are serving residents. A lot of the new construction that we’ve seen has been more around the luxury type product type. And so we don’t think that there’s a lot of new construction kind of coming online that can offer services at our price point.

Andrew Mach, Facilities and Managed Care Analyst, Barclays: Got it. That’s helpful. And you mentioned earlier this year’s flu is one of the worst we’ve seen since the twenty seventeen, twenty eighteen season. How does the flu impact your business? Does it impact the occupancy?

Is it more elevated costs to take care of those members?

Cindy Baer, CEO, Brookdale: So, really both. I think the biggest impact is on occupancy. And if you think about the age of the residents that we serve, they are the most vulnerable to any virus and anything can change their health condition. And so we do look at that. It also affects move ins.

If you have to close your community because of flu outbreak for instance, it slows move ins. Now what I’m really excited about is despite the fact that it has been one of the most challenging flu situations in the last fifteen years, within our communities we’ve had absolutely great experience. We’re very proactive in terms of conducting vaccination clinics for our residents and our associates. Our residents tend to have a very high vaccination rate and so that helps. And one of the silver linings of COVID, I think, is that we’ve really stepped up our infection prevention controls, whether it’s cleaning, hand sanitation, making sure that residents and associates are isolated.

The cost side that we really see is on increased cleaning costs. And if you have to have your associates who isolate as a result of the flu, you may have to incur over time our premium labor.

Andrew Mach, Facilities and Managed Care Analyst, Barclays: Right. Maybe sticking on the labor point for a second, I think two thirds of the cost of your business. Can you talk about like hiring and retention efforts at the community levels? Where have you made the most progress? And which positions have been the most difficult to fill?

Cindy Baer, CEO, Brookdale: Let me start with the positions that are most challenging. The position that is probably hardest to fill is our nurses. And that makes sense because there is a national labor shortage as it relates to nurses, and everybody is competing for that talent. But we have made so much progress both on our key three community leaders, our executive directors and our health and wellness directors included, as well as our associates. Our associates, we’ve improved our turnover by 13 percentage points from 2024 relative to 2023.

And that was driven by seven consecutive quarters of year over year improvement in retention. And what we’ve really done to achieve this is we’ve really focused on the culture, we focused on total rewards for our associates, we focused on the onboarding experience to make sure that once someone joins us, they have that good experience as well as good training and career pathing. And so, we’re very proud of the fact that our workforce is very stable and we’re making progress on that front.

Andrew Mach, Facilities and Managed Care Analyst, Barclays: Great. And then maybe comment on the underlying wage inflation that you’re seeing in the market. And now that we’re a few years removed from the pandemic, how would you compare the post pandemic labor market to the pre pandemic labor market?

Dawn Cuso, CFO, Brookdale: Yes. There’s no doubt that the wage inflation has been challenging, particularly as you just pointed out coming out of COVID twenty twenty two, we had a very high labor inflation. What we saw in 2023 and 2024 is we saw that starting to moderate. And then what we our expectations were is that it would continue to moderate into 2025, but at a little bit of a higher cost than what we have historically seen kind of pre pandemic. One of the things that we focus on is making sure that we are competitive from a total rewards perspective as we’re looking at compensation and benefits for associates.

Andrew Mach, Facilities and Managed Care Analyst, Barclays: Great. So moderating, but to a level that’s above your pre pandemic historical

Dawn Cuso, CFO, Brookdale: level of weight. Yes, exactly. Yes, correct.

Andrew Mach, Facilities and Managed Care Analyst, Barclays: Now that you’re expecting to be free cash flow positive for this year, how should we think about capital deployment as discretionary free cash increases must be an exciting topic for a CFO?

Cindy Baer, CEO, Brookdale: Yes. What I’ll say is that I’m really excited about the fact that we had positive free cash flow in the back half of 2025 and we’re expecting meaningful improvement in ’20 positive free cash flow in the back half of 2024 and we’re expecting meaningful improvement in 2025. We’re going to continue to appropriately invest in our associates, our communities and that will benefit our shareholders. One of the things that Don and I have been talking about and that you’ll see a little bit more about is more revenue enhancing CapEx. And we’re really set up incredibly well for that.

If you think about all the work that we’ve done with our lease, renegotiations over the last year, Our landlords are funding a lot of the CapEx that we’ll use in our communities, and that will allow us to position our business for success in the future.

Andrew Mach, Facilities and Managed Care Analyst, Barclays: Got it. And any other are there any desires to expand the portfolio or other expand are most of these expansions you’re talking about within the existing portfolio or are there any other kind of lines that you would look to add?

Cindy Baer, CEO, Brookdale: I think most of the work that we’ll do is within our portfolio. Certainly, there may be an opportunity at some future point, not this year, but some point in the future to increase the density. And also looking at our leverage, we’d love to have lower leverage as time passes.

Andrew Mach, Facilities and Managed Care Analyst, Barclays: Got it. Okay. And then Brookdale has been scaling the Health Plus VPC program for I think a few years now. Can you talk about the adoption rates and interest from managed care? Is the program currently profitable?

And how should we think about the contribution from Health plus

Cindy Baer, CEO, Brookdale: I don’t really think about Health plus in terms of adoption rates with managed care plans. We have HealthPlus in 129 communities today and that is available. Those services are available to every resident in the community. And so they benefit from the RN care coordinator and all the benefits that come through the program. We’ll expand Health plus in roughly 60 additional communities today or this year, assisted living communities.

And if you think about Health plus communities, we for the third year now have had a third party look at our Health plus outcomes and we’ve expanded it to include any community that’s operated into the Health Plus platform for at least twelve months. And what we see is residents have 80% fewer urgent care and emergency room visits, 66% fewer hospitalizations. And importantly, on the operational metrics, we see strong performance from attracting residents from the length of service of our employees and importantly from the financial performance of the communities relative to non health plus communities.

Andrew Mach, Facilities and Managed Care Analyst, Barclays: Great. Wanted to talk about some of the DC and regulatory items. We’re only two months or so into the new administration. Is Is there anything to call out from a regulatory backdrop? It seems like most of the obviously targeted areas are on the Medicaid and the exchange portion.

It seems like your business would be fairly insulated from that. So anything that you’re monitoring that could be more impactful to your business?

Cindy Baer, CEO, Brookdale: So 94% of our business is private pay. So we’re pretty isolated from most of the changes that are being discussed. What I will say with the new administration is we do expect less regulation and maybe some rollback of regulation of some recent proposals that could be good for us in the small percentage of our business at skilled nursing.

Andrew Mach, Facilities and Managed Care Analyst, Barclays: Are you talking about things like the minimum staffing rules, things like that? But that doesn’t impact your business?

Cindy Baer, CEO, Brookdale: A tiny bit. We’ve got about 2% of our business at skilled nursing.

Andrew Mach, Facilities and Managed Care Analyst, Barclays: Got it. Okay. And then maybe just finally here, the new Engagement plus program that you highlighted on the recent earnings call, could you provide a little bit more color on that program and what you’re excited about there?

Cindy Baer, CEO, Brookdale: Engagement plus is really allowing us to deliver a better resident experience. It accelerates the time that we can spend with residents by helping them pursue their passion, learn their life story, make new friends, be engaged. And it’s really about individual experiences within the community, so that the residents have as much personalized experience as they can possibly have.

Andrew Mach, Facilities and Managed Care Analyst, Barclays: Got it. Well, we’re just about up on time here. So why don’t we end it there and thank you for joining and please enjoy the rest of the conference.

Dawn Cuso, CFO, Brookdale: Thank you so much. Thank you very much.

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