Emeritus deal drags down Brookdale Senior Living results

Brookdale Senior Living, the nation's largest senior and assisted-living company, ended the final months of the year with flat revenue and a drop in occupancy as the company struggled to digest its $2.8 billion acquisition of Emeritus Corp.

Nashville-based Brookdale acquired Seattle-based Emeritus Corp. in a July 2014 deal that added 10 states to the company's portfolio. But the deal proved disruptive. Brookdale struggled with turnover of key employee and falling occupancy. Activist investors Sandell Asset Management, unhappy with the company's performance, last year pushed for a real estate transaction and eventually won seats on the board.

Brookdale directors—including two added to the board last year under an agreement with hedge fund Sandell Asset Management—have reviewed operations and endorsed the company's existing organization and long-term strategy, Brookdale CEO Andy Smith said on the call.

Investors reacted to the news with a selloff and Brookdale's stock fell took a “surprising” dive on the news no real estate deal is in the works, Frank Morgan, an analyst with RBC Capital Market, said in an investor note following the company's earnings call.

In light of the stock's recent weak performance, “we believed the market was already pricing this in, and are surprised by the magnitude of the selloff,” he wrote. Brookdale's stock was already down 50% in the last six months, a sharper decline than the S&P 500, which has fallen 12% during the period, Morgan noted.

During the call with analysts, Smith said executives “are very frustrated” with recent market activity.

The company intends to regain market share and leverage the Emeritus deal in the coming year, the executives said on the call. “I am happy that the integration is behind us,” said Chief Financial Officer Lucinda Baier, who joined the company in December.

The company raised prices for existing customers in January and will continue to raise rates where Emeritus prices were historically lower than Brookdale's, which should boost revenue in the coming year, executives said. The company also launched national and local marketing campaigns to boost occupancy as 2015 ended.

Brookdale's larger size will also give the company leverage to save with suppliers, such as facility management and food companies, officials said on the call.

Meanwhile, the company has sold 16 facilities and expects to divest another 18.

In the fourth quarter last year, the company's $1.24 billion in revenue was largely flat compared with the $1.25 billion reported for the same three months a year ago. Average occupancy was 86.8% during the quarter compared with 88.3% during the fourth quarter 2014.

Brookdale reported a net loss of $174.3 billion for the quarter compared with the $106.5 million loss during the fourth quarter a year ago.

For the full year, Brookdale saw a net loss of $457.5 million on revenue of $4.96 billion compared with a net loss in 2014 of $149 million on revenue of $3.83 billion.



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