Analyst: Brookdale Senior Living On ‘right Path’ With Latest Occupancy Gains

Brookdale Senior Living (NYSE: BKD) reported 79.3% weighted average occupancy in February, up 140 basis points from last year , a sign the company could see a re-acceleration of growth in 2025, according to one analyst.

Occupancy for the Brentwood, Tennessee-based senior living operator increased by 10 basis points from last month, potentially beating seasonal selling trends in which the winter months remain slower than spring and summer move-in conditions for older adults seeking senior living.

Macquarie Senior Healthcare Equity Research’s Tao Qiu wrote in a March 11 note to investors that the company’s current path will serve it well amid its ongoing proxy fight with activist investor Ortelius Advisors.

“Current data suggests growth has re-accelerated for four straight months,” Qiu wrote. “This boosts our confidence that FY2025 average occupancy growth will outpace the current … consensus estimate.”

On March 5, Ortelius Advisors nominated six new members to Brookdale’s board in response to what the activist investor described as “Brookdale’s abysmal performance and chronic undervaluation.” Specifically, the company took issue with a variety of performance measures that have declined since 2018, including net operating income margin, free cash flow and share price. The letter also notes that the value of Brookdale’s owned real estate was “locked.”

“While investors are waiting for details of a value-unlocking proposal, we think continued execution of organic growth and portfolio pruning are the best strategy to improve shareholder returns near term,” Qiu wrote.

He added: “We believe Brookdale is on the right path to improve cash flow and shareholder returns. We think Brookdale is a relatively high-risk, high-reward play on the private-pay senior housing industry benefiting from favorable supply and demand.”

Qiu also pointed to the fact that past activist campaigns from other activist investors, such as Land & Buildings, “have not yielded quick results that many hoped for.”

“Recall similar activist campaigns in 2015, 2016, 2018 and 2019 coupled with a rumored sale in 2017, conclusion of strategic review and management change in 2018,” he wrote.

Although Qiu noted that much of Brookdale’s intrinsic value lies in its 353 owned communities, he doesn’t believe the company can easily sell off real estate without incurring operational difficulties.

“Peers Welltower and Ventas, who traditionally left day-to-day management to their operator partners, are boosting their own operational capabilities, investing heavily into data, system, and personnel, taking a page from apartment REITs,” he wrote. “As we learned from recent lease negotiations, replacing operators for a portfolio of BKD’s scale would be a daunting task for anyone.”

Earlier this year, Brookdale announced it was expanding its EngagementPlus program that aims to help residents build meaningful friendships and lifestyles that match their interests, which compliments the company’s HealthPlus service line that has grown rapidly over the last five years.

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