Brookdale Pays Attention to Reducing Agencies, Encouraging ‘Growth Thinking’ ED

Brookdale Senior Living (NYSE: BKD) CEO Cindy Byer says the company is off to a “great start” in 2023, with staffing being the main reason.

Executives of senior housing operators have made progress in reducing the company’s recruitment agency costs and “evolving” the role of the company’s chief executive to take on more of a “growth mindset.”

“As we emerge from the pandemic, we believe that targeting and developing successful leaders with both operational and financial acumen is another way we can ensure a further increase in occupancy in our communities,” Bayer said on Wednesday. the time of the company’s phone call with investors and analysts about fourth-quarter earnings.

Brookdale management has also redesigned the company’s operational support functions, such as financial planning and analysis, to better support the company’s 632 communities.

“In 2023, we aim to raise the bar even higher,” Bayer said.

Adjusted operating income increased approximately $10 million, or 7.7%, from the third quarter, the largest increase in operating income in the previous six quarters. Brookdale also reported a 10 percent increase in revenue per available room (RevPAR) in Q4 2022 compared to last year.

Revenue Per Occupied Room (RevPOR) also rose 4.5% year-on-year after declining in the third quarter. Brookdale’s fourth quarter weighted average occupancy rate was 75.4% compared to 71.5% in the same period last year, up 360 basis points.

Brookdale’s 4Q22 results were “better than we expected,” writes Stifel analyst Tao Qiu.

“We believe that with strong rate increases and cost reductions, the company will be able to achieve significant margin growth and strong earnings growth in 2023,” Qiu wrote in a note to investors on Feb. 21. “Favorable demographics and limited supply growth create a favorable backdrop for further recovery and growth beyond 2025.”

Shares of the Brentwood, Tennessee-based company closed at $3.34 a share, up 11.3% on the day and up about 21.5% year-to-date.

Labor spends “critical attention”

As with other senior care companies, Brookdale’s management is focused on profits in 2023. Bayer says the company sees labor costs as a critical area for improvement.

The company is focused on replacing the use of agency employees with overtime work of full-time employees. The company has already reduced its workforce usage by 80% between December 2021 and December 2022. And last year, the company hired about 5,000 people, representing a 15% increase in the company’s internal workforce.

However, Bayer noted that the company’s progress in this direction was “slower than we expected” given the competitive labor market.

“Looking to 2023, we are focused on reducing employee turnover and increasing the tenure of our employees and community leaders,” Bayer said. “We build on the actions we took in 2022 and expand on some of our successful pilot programs, including learning and career opportunities for employees, diversifying recruitment programs to attract and engage the right people, and improving learning and onboarding.”

As Brookdale replaces agency work with in-house employees, the company predicts the effect will be cost savings that could be noticeable as early as Q1 2023.

“I think we expect to reduce our operating costs while maintaining productivity,” Brookdale CFO Dawn Kussow said during an earnings call.

Kussov, who will replace Steve Swain, noted that cuts in premium labor costs are already slowing down, and there have been improvements in January.

“We expect our facility’s operating expenses as a percentage of our senior housing income to improve significantly compared to the fourth quarter,” Kussow said. “Given that we will have to hire fewer people in 2023, this should really help us with overlapping labor costs.”

CEOs with a growth mindset

Occupancy and margin growth are important targets for Brookdale in the first quarter. The company believes that chief executives can play a big role in filling apartments at the highest possible price for residents.

Led by chief sales officer Rick Wigginton, this evolution includes a new compensation model that the company plans to roll out widely in 2023, Bayer said.

“We’ve also redesigned the job description to make it clear that our CEOs understand exactly what’s most important to success,” Bayer said. “And we’re working to develop curricula and groups that will enable EDs to learn and grow as leaders.”

Brookdale also created career paths last year for caregivers who want to become CNAs or medical technicians. The company has also developed leadership development programs for department heads to grow them into executive directors.

The company’s existing chief executives are also placing more emphasis on reducing agency work in 2023.

“We have made significant progress in 2022, but premium labor costs remain too high,” Kussov said.

Forecast for 2023

Bayer said Brookdale will begin issuing quarterly forecasts to provide short-term transparency to investors.

“We believe this approach appropriately balances the ongoing uncertainty in the macroeconomic environment and the resulting difficulties that cause or predict what lies ahead,” Bayer said.

But overall, she sees the company’s efforts in 2022 as “laying the foundation” for success in 2023.

The company expects RevPAR to grow by 11-12% year on year in the first quarter of this year. Bayer also sees a return to more normal seasonality in older people’s lives in 2023.

“We look forward to 2023 being a successful year for us,” Bayer said.

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