By Steve Moran
I am not sure this is quite the right title. It seems likely that Brookdale will continue to be something, in at least the near term future. I have not written about Brookdale for a long, long time and hesitate to do so even now. But given their size, it also seems irresponsible not to address the elephant in the room.
In contemplating writing this story, I realized that back in the early days of Senior Living Foresight (Senior Housing Forum), I was kind of this rogue outsider who made my mark saying the things that needed to be said. I had few deep relationships, which made saying those things much easier.
Today, while we still tackle difficult topics that no one else will, it is harder. Because I find myself writing about people who I know, like, and respect.
I ultimately made the decision to write and publish this article for two reasons:
- This may sound perhaps arrogant, but there are some important lessons for Brookdale in this article.
- The teachable moment applies to every single senior living operator and to every single solution provider in our sector.
I also want to note that if you were to look at the filings for Five Star Senior Living and Capital Senior Living they have very similar occupancy challenges, but this article focuses on Brookdale because they are the biggest and most prominent.
Quarterly Report & Occupancy Update
I spent a couple of hours taking a look at Brookdale’s last quarterly earnings transcript and accompanying documents. Doing this is curious because the message, as I interpret it, goes something like this:
- We did a great job of keeping residents and team members safe
- We did an amazing job of getting residents and team members vaccinated
- We struggled with occupancy and continue to struggle but not as much as everyone else
- We did okay because we controlled costs during the pandemic
- We will win more than our fair share of the new move-ins going forward because we are the biggest and we are pressing our salespeople hard
It comes across as being more good news than bad.
EXCEPT . . .
On March 8, they reported an occupancy rate that is right at 70%.
While the industry average as reported by NIC is 76.1% for companies that have a majority of assisted living and 82.5% where the majority of the buildings are independent living.
There are two more things that are really crazy-making to me. First, their stock price has taken a significant jump. And second, during the Q & A period of the earnings call, not a single analyst asked about the really significant occupancy discrepancy. This leads me to believe the questions and or analysts are carefully screened to make sure this hard but obvious question does not get asked.
Reading the earnings transcript made me feel like I was reading a modern version of “The Emperor’s New Clothes”.
Early on, when people would talk about Brookdale underperforming it was mostly attributed to them getting stuck with a bunch of crummy Emeritus buildings. Even then, it seemed like more of an excuse than a reason. But that was such a long time ago, there must be something else going on.
The Triple Problem of Being the Biggest
1. Big = Best
It is often true that when you first become the biggest you are the best, which is what got you there (not how Brookdale became the biggest). The problem is that once you become the biggest, it becomes super easy to convince yourself you are the best. And if you are the best, no one can question the way you do business.
And yet there are so many biggest companies that no longer exist (or are close to non-existence): Blackberry, Kodak, Sun Microsystems, and Toys “R” Us, but there are hundreds of them. They all got in trouble because in their mind biggest meant best.
Brookdale has invested millions of dollars in creating operating systems that are unique to them. They really have become a big part of the Brookdale identity and brand. And it is not just the money, it is the people who have built the systems who have trained on the systems. It is everything.
The problem with all of this is that it becomes really hard to admit that this thing you created, your baby, your whole identity, is not working well and needs to either be scrapped or at least subjected to a massive overhaul.
Maybe the best way to look at it is like this:
Imagine that Brookdale was just as it is — same systems, same performance, but a different senior leadership team. Also imagine that the current leadership team was not leading Brookdale, but made their living as turn-around consultants, helping public companies improve their performance.
This leadership team is hired to come into Brookdale with the goal of making them highly successful. Would they look at Brookdale as it is today, and say, “Things are as good as they can be,” or would they make a bunch of recommendations for change?
I could be wrong, but I believe with all my heart they would recommend significant, substantive changes.
3. The Big Ship Problem
The bigger a ship is the longer it takes to stop it or turn it around. Two years ago I was on a week-long Caribbean Cruise out of San Juan Puerto Rico. Thirty minutes after clearing the San Juan Harbor, a passenger had some kind of medical emergency.
The captain made the decision to turn the ship back around and get the passenger to medical (it was never clear why they did not do a helicopter evacuation). It took nearly three hours to turn the ship around, get the passenger and the rest of the party off the ship, and back to the turnaround point.
I have talked to a number of vendors who either do business with Brookdale or have attempted to do business with them. While it can be modestly easy to get a hearing, it is notoriously difficult to get a response yes or no.
This is not healthy.
Senior Living is at a crossroads. There will always be a need for some senior living. The question is will we, as an industry, will Brookdale as a company, go beyond the need, to the heart’s desire? This is what it will take for our industry to thrive.
As hard as things are for Brookdale, Five Star, Capital Senior Living, and really the entire industry, we have a tremendous opportunity ahead of us, if we are willing to embrace change.
And, yes, I still think Brookdale should put me on their board or hire me to help.