Brookdale Senior Living (BKD)

TOP CONTRIBUTORS

Arthur Hayes

Thomas Shyr

Brookdale Senior Living (NYSE: BKD) is the largest and most regionally diversified operator of senior living communities in America. As of December 31, 2009, it had 565 communities in 35 states and the ability to serve approximately 53,600 residents.^[1]

The company stands to benefit from the aging of the baby boomers, which will see more seniors entering retirement communities. The subprime crisis and the ensuing credit crisis has both limited the ability of seniors and aging baby boomers to afford retirement communities, and has caused Brookdale senior management to worry about whether it can make debt payments, and used borrowed money to grow its business. This is because 83% of BKD's revenues are from private pay customers.^[1]

Company Overview

Brookdale Senior Living offers assisted and residential communities to senior citizens across the United States. Brookdale operates 565 communities in 35 states that serve over 53,000 residents. Brookdale also offers management services to other communities throughout the nation. Brookdale also provides ancillary services such as therapy and home health to it's residents.

Business Financials

In 2009, BKD had total revenues of $2.01 billion, an increase from its previous year's total revenues of $1.93 billion.^[1] This increase was largely due to an increase in average monthly revenue per unit/bed, including increases in BKD's ancillary services revenue. As a result of this and tight cost control measures, BKD was able to reduce its net loss from $373 million in 2008 to $66 million in 2009.

Business Segments

BKD breaks its operations into four business segments: i) retirement centers, ii) assisted living, iii) continuing care retirement communities (“CCRCs”), and iv) management services.

Retirement Centers

Retirement centers are communities consisting of middle to upper income seniors who desire upscale residential living.

Assisted Living

Assisted living communities are communities for seniors who require 24-hour medical assistance.

Continuing Care Retirement Communities (CCRCs)

These are large scale communities offering a variety of living arrangements and accommodate all levels of physical ability and health.

Management Services

This segment earns revenues by providing management services for senior homes that need a company to manage their operations.

Trends and Forces

Aging Baby Boomers Entering Managed Care Facilities

The primary market for senior assisted living services are people over the age of 80. With the decreasing size of the American family and the increased financial burden placed on families with children, baby boomers will probably not be able to count on their adult children for senior care or financial assistance. Since Brookdale Senior Living is the largest provider of these services and has facilities across America, they are uniquely positioned to take full advantage of the graying of America for those who can afford its care.

Falling House Prices Delay When Seniors Can Move Into Retirement Communities

Retirement communities such as the ones that Brookdale operates are not cheap. The fees that residents pay are generally not covered by Medicare or Medicade; therefore residents must pay out of their own pocket. A common way for residents to afford the entrance fees and/or monthly fees is to sell their home. Home prices have been falling, and very few homes are being sold which makes it very hard for residents to afford moving to one of Brookdales's retirement communities. Retirement incomes will most likely not increase at the same rate as operator costs and therefore further limit the affordability of senior care In the future. Retaining and attracting new residents will become more difficult, which in turn will affect Brookdale's ability to expand and to maintain current occupancy rates.

Credit Crisis Affects Brookdale's Ability to Grow and Pay its Debt

Brookdale has a significant amount of mortgage debt and lease obligations tied to it's properties. With the current liquidity crisis caused by subprime lending, Brookdale is left exposed to rising interest rates and borrowing costs, which will raise it's debt payments and cut into net profitability. Management also worries that Brookdale will not have the cash to pay it's debts and will be forced to foreclose on some properties. By the same token, Brookdale relies heavily upon mortgages and leases to acquire new properties and grow its business. With lenders more reluctant to lend in this economic environment, Brookdale's Senior Management worries that it will not be able to receive the funds it needs to grow the business.

Competition

Brookdale Senior Living competes in the competitive Senior Living Industry. The industry features many players of which Brookdale is the largest and most regionally diversified in America. Brookdale continues to face competition in acquiring and operating senior living facilities.

Brookdale Senior Living's main competitors are Sunrise Senior Living (SRZ), Emeritus (ESC), and Capital Senior Living (CSU)

References

1. ↑ ^{1.0 1.1 1.2} BKD 10-K 2009 Item 1 Pg. 5