Investors have picked over almost every reopening trade imaginable. But there is a fresh opportunity as the senior-living industry rebounds from an especially harsh pandemic blow.
It wasn’t just that nursing homes and related facilities were early epicenters of Covid-19 outbreaks, which gave would-be customers an obvious reason not to send their relatives to one. The industry was also hit by the economic fallout from the pandemic: Demand for senior-living services is sensitive to the economy as residents and their families often need to come up with the money themselves, especially following the financial turmoil that has beset long-term-care insurance providers.
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. The hit to the top line was coupled with Covid-19 related expenses such as personal protective equipment and extra pay for staff. Brookdale shares were down more than 75% at the nadir of the crisis.
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.
That effort entailed, for instance, securing priority status for residents in both federal and state vaccine rollouts and partnering with pharmacies to deliver the shots. About 93% of residents have accepted a vaccine, and Covid-19 cases at Brookdale facilities are down 97% from the peak. And while occupancy remains well below pre-pandemic levels, the rate has improved steadily over the past four months to 71.2%.
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.
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It will take time for occupancy to return to pre-Covid levels, let alone that gaudy figure.
But over the long term, perhaps that rate isn’t an unrealistic aspiration. U.S. demographic trends surely favor Brookdale: The population of potential residents is due to expand by 36% by 2030, according to Census Bureau projections. And while long-term care stretches most household budgets, in many cases it isn’t a discretionary expense: The number of patients living with Alzheimer’s disease is expected to increase by 39% by 2030, according to the Alzheimer’s Association. An aging population also means a relative shortage of willing unpaid caregivers, such as relatives.
And while Brookdale has reduced its portfolio in recent years, there is still long-term potential for consolidation in a highly fragmented industry. Brookdale maintains less than 4% market share despite its status as the industry’s largest player.
With the industry’s recent turmoil behind it, this stock is one to grow old with.
Write to Charley Grant at charles.grant@wsj.com
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