By Steve Moran
In the July 13, 2021, print edition of the Wall Street Journal, you can find this article, “The Senior Living Stock That is an Overlooked Reopening Play” (paywall warning). The article suggests that Brookdale stock represents a significant investment opportunity.
It made me so frustratingly mad that I wrote the following letter to the Author Charley Grant. I also submitted it to the Letters to the Editor. You are reading it here because it didn’t make the cut as a Letter to the Editor, which is what I expected.
This article is under-researched and ignorant. It has the potential to mislead investors and make people more distrustful of senior living. I am not particularly trying to pick on Brookdale or shine a negative light on them.
I believe Brookdale leadership is leaving millions of dollars of cash flow on the table each year and hundreds of millions, maybe even billions, of dollars of capital valuation on the table.
I confess to not understanding how underperforming is acceptable rather than being seen as an all-hands-on-deck, we-have-to-do-something-radically-different” crisis. But fundamentally, my letter is about how the Wall Street Journal is misleading investors.
It is unclear if they are doing it deliberately or negligently.
This article about Brookdale is so off the mark that it makes me distrust anything you write and taints the WSJ.
While this statement is factually true:
“Brookdale Senior Living, a publicly traded operator of nearly 700 senior-living facilities and other senior living communities in 42 states across the U.S., was certainly no exception. Occupancy rates at Brookdale fell to 69.4% earlier this year from about 82% before the pandemic.”
What you completely ignore is that Brookdale’s occupancy before the pandemic, during the pandemic, and today as we are seeing some signs of improvement, has been consistently and substantially lower than the industry.
Shouldn’t they, as the largest provider with the most advanced systems, be at least even and logically above the national average? Yet you don’t even address this. Do you even know this to be true? How can you not bother to research this?
Nothing unique here, though you give it importance it should not have. Their size gave them no advantage:
“Thanks to a swift vaccine rollout, however, the picture at Brookdale is noticeably brighter today. ‘It felt like we moved heaven and earth to make this happen,’ said Chief Executive Lucinda ‘Cindy’ Baier in an interview.”
Then, you reference a group of analysts who clearly have not done a thorough job of researching the industry and Brookdale’s relative position saying this:
“Shares have recovered from their pandemic plunge, but there should be more upside for patient investors. Analysts at Stifel project the stock could double under a scenario where occupancy rates reach 90% and valuations on its properties hold steady.”
How is this not simply misleading investors by omission? There is zero evidence, historical or otherwise, to assume that the whole market will get there and more specifically Brookdale will get there.
There is no basis for this statement:
“But over the long term, perhaps that rate isn’t an unrealistic aspiration.”
Brookdale offers nothing in the marketplace that is exceptional or extraordinary. They have not, for many years, even met average industry occupancy numbers. To believe that demographics will somehow work a miracle for Brookdale makes no sense.
Even if, for a moment, the older demographic grows faster than supply and that consumers won’t choose other options and other entrepreneurs will not create alternatives, betting only on demographics with a middle-of-the-road product has never been a winning strategy for any company in any industry.
I am willing to concede that even if there is a spike in occupancy it cannot last with their existing business model and strategy.
You close with this:
“With the industry’s recent turmoil behind it, this stock is one to grow old with.”
It is simply bad misleading advice.