Brookdale Senior Living Inc.

Good morning, ladies and gentlemen. My name is Lee, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Brookdale Senior Living Third Quarter Earnings Relief Call. All lines are on mute. We will open the line for questions at the end of the call. As a reminder, this conference will be recorded for replay purposes. I would now like to turn the call over to Kathy McDonald and Investor Relations. Ma'am, you may proceed.

Thank you, and good morning, everyone. I'd like to welcome you to the third quarter 2019 earnings call for Brookdale Senior Living. Joining us today are Cindy Beyer, our President and Chief Executive Officer, and Steve Swain, our Executive Vice President and Chief Financial Officer. All statements today, which are not historical facts, may be deemed to be forward-looking statements within the meaning of the federal securities laws. These statements are made as of today's date and we expressly disclaim any obligation to update these statements in the future. Actual results and performance may differ materially from forward-looking statements. Certain of these factors that could cause actual results to differ are detailed in the earnings release we issued yesterday, as well as in the reports we filed with the SEC from time to time, including the risk factors contained in the annual report on Form 10-K and quarterly reports on Form 10-Q. I direct you to the release for the full safe harbor statement. Also, please note that during this call, we will present non-GAAP financial measures. For reconciliations of each non-GAAP measure from the most comparable GAAP measure, I direct you to the release and supplemental information, which may be found at brookdale.com forward slash investor and was furnished on an 8K yesterday. Also, in today's call, when we reference same-community, This refers to consolidated senior housing, same community information. With that, I would like to turn the call over to Cindy.

Thank you, Kathy. Good morning to all of our shareholders, analysts, and other participants. This morning, I'll provide an update on our ongoing strategic plan, third quarter results, and we'll introduce our five-year outlook. Before I speak about our operations, I'd like to address some changes on our board and start by thanking our two retiring board members, Jackie Clegg and Jim Seward. Jackie Clegg was instrumental in the numerous governance changes we made over the past few years and our director search processes, through which stellar new directors were identified and have joined our board. Jim Seward's strong financial acumen and his strategic oversight helped us evaluate many deals to reshape our community portfolio. As a result, we have a stronger foundation for long-term growth. During their tenure, both Jackie and Jim demonstrated exceptional leadership and expertise to guide Brookdale through significant change and provided wise counsel during a period of rapid transformation in the senior housing industry. We appreciate their time and dedication to Brookdale. Next, we are excited to welcome Vicki Freed and Guy Sansone to our Board of Directors. Both Vicki and Guy have the skills and experience which we believe will help Brookdale drive enhanced shareholder value in this time of continuing rapid change. Vicki has decades of executive leadership in sales and marketing, a critical skill set not previously represented on our board. Guy brings extensive healthcare and senior housing industry expertise and has advised many companies in their efforts to optimize performance. We look forward to their input and oversight as we continue the successful execution of the company's strategic plan. We also look forward to working with Guy as he assumes the non-executive chairman role at the beginning of 2020. Finally, I want to thank Lee Walansky for his leadership of the board as Brookdale's non-executive chairman since the conclusion of our strategic review last year. Lee has been instrumental in helping us achieve our lease renegotiations, and we are pleased that he will continue to provide guidance and oversight as an independent director. Turning to our operations, let me set the stage by reminding you of the key tenants of our strategy. We set a path to improve our operations to better position Brookdale for positive senior demographics and the industry tailwinds. We also announced our plan to reduce our community count through an enhanced real estate strategy so our remaining communities have the highest future potential. So how are we doing? Put simply, the transformation we initiated last year is working. This quarter's performance and the recently announced transactions with HCP provide further evidence of the progress we are making with our strategic plan. I'll discuss the HCP transactions later. So first, turning to operations, let me provide the industry backdrop to frame how Brookdale's results exceeded the market in the third quarter. Conditions are improving for the senior living industry. According to NIC's third quarter report, absorption slightly exceeded inventory growth for both independent and assisted living in the third quarter. This is the first time since 2016 that both industry segments hit this inflection point. This is in line with our previously stated view that the supply-demand equilibrium would occur by the end of 2019. the industry's inventory growth of 2.9% was the lowest since 2016. Occupancy for the industry improved 30 basis points on a sequential basis. At Brookdale, we are pleased to report same community sequential occupancy improvement was more than double the industry, achieving 70 basis points growth. On a same community basis, our occupancy growth for the quarter increased exceeded the industry by 20 basis points for independent living and by 80 basis points for assisted living. Not only are the results great compared to the industry, but they are also strong compared to our company's historical trend. Year to date, this is the best in-year same community occupancy growth since the emeritus merger in 2014. Our October occupancy continues this positive growth trend. Our first priority was to drive top-line growth, and I'm extremely pleased that the investments that we made in associates, marketing, and CapEx drove this great occupancy growth and translated into strong senior housing revenue. For the third quarter, year-over-year senior housing revenue grew 1.8% for both the quarter and year-to-date on a same community basis. Year-over-year REVPOR growth was 2.8% for the quarter and 3.1% year-to-date. Similar to the industry, we saw some pressure on rate during the quarter. Even so, we still believe in our continued pricing power based on delivering high-quality care and services to our residents. While accomplishing top-line growth, we continue to focus on our associates and on the operational leading indicators to drive future growth. Trailing 12-month retention rates have remained around 70% for nine consecutive quarters for our executive directors and health and wellness directors. These are two of our three cornerstone leaders in our communities. The retention rate for sales professionals remains around 66% over the past four quarters and continues to be a key focus area. I'm pleased that our voluntary turnover has improved. At the same time, we have been very focused on coaching, mentoring, and accountability. With this focus, our involuntary turnover has increased. Year to date, nearly 2,600 former associates have returned to work at Brookdale, demonstrating that our focus on our associates and our win locally culture is creating thriving communities where people want to live and work. We have had significant success with our leading indicators in the third quarter with leads and first visits returning to growth. Compared to the prior year quarter, on a consolidated same community basis. Total company leads increased 18% driven by continued strength and momentum of internally generated leads. In addition, for the third quarter, aggregator lead volume returned to a positive contribution on a year-over-year basis. With our marketing investments, we are building a robust lead pipeline. resulting in visit growth that can be effectively managed by sales to drive strong move-in growth. We are filling our lead pipeline with a mix of prospects who either have a near-term need or are planning ahead for senior living. This helps our sales organization be more effective with conducting quality visits with prospects. As a result, first visits increased 4% from internal sources. With overall move-ins increasing 8%, we were able to see our lead funnel in action. As we have invested more in our internal marketing programs, we are seeing longer-term benefits of building a lead pipeline with move-ins occurring in both the month in which the lead occurred as well as months after the initial inquiry. I couldn't be more excited with our move-in progress two quarters in a row. Move-outs are not where we wanted them to be. We faced a tough comparison to last year, and we are pleased with the sequential improvement. The net of move-ins and move-outs resulted in strong sequential occupancy improvement. When we introduced these leading indicators last year, they were intended to demonstrate the operational improvement before you could see our progress in our financial results. you can see the positive impact in same community year-over-year RevPAR growth of 1.8% and sequential occupancy growth. Importantly, the recent positive growth in leading indicators should deliver future benefits over the next few years. I'm pleased with these accomplishments and continue to encourage our operational teams to remain focused on the occupancy momentum while protecting rate. While we saw great success in occupancy, operating expenses presented some challenges. I want to address two areas where we are focused on improvement. First, our senior housing operating expenses, and second, our healthcare services business. About 65% of community operating expense is labor related. Year over year, same community labor expense increased 6.8% for the quarter. resulting in a 5.3% increase year-to-date. This is within our initial guidance expectations range of 5% to 5.5%, but with the tightest labor market in 50 years, we expect to be at or slightly above the top end of our range for the full year. We do know that the entire industry is facing these same pressures. NIC recently reported a significant increase in wage rates within the industry. The key drivers of the other facility operating expense increase were marketing and advertising investments, property remediation, and higher insurance premiums. Given the top-line success we've driven with our internal marketing efforts, we expect to continue these investments in the fourth quarter. Turning to our healthcare services segment, in the third quarter, our revenue increased 3% for both the quarter and the year-to-date compared to the prior year. The growth was driven by our hospice business. We were disappointed with the third quarter revenue performance of the home health business, which declined by 1% compared to the prior year. This was a direct result of turnover within our sales organization and the time the sales organization needed to spend on issues related to the centralized intake initiative. We have taken action to improve home health revenue growth in the fourth quarter, But with this temporary impact, we now expect to deliver towards a low end of our health care services revenue range for the full year. With that said, I'm extremely pleased with the strong momentum of our hospice business. While a smaller part of our health care services segment, it has a long runway of growth. We've opened three new agencies this year and now operate 22 locations across the U.S. In future years, we see significant opportunities to continue expanding in other major markets. Before I conclude by discussing our outlook and guidance, I would like to make some comments on the recently announced transactions with HCP. I am thrilled that in October, we announced significant transactions with HCP. Since I became CEO, I've been focused on how to unlock the value of the entry fee continuing care retirement community. or CCRC venture. And Tom Herzog and I discussed a number of ways to create a win-win for Brookdale and HCP. We believe we have done just that with these transactions. I'm pleased that when the transactions are completed, 14 of the CCRC communities will be owned within the HCP portfolio. This includes one additional CCRC that was agreed on after the October 1st announcement. Our CCRC associates will continue to care for the CCRC residents after the community's transition to a new operator. We worked hard to create a transaction that delivers value for our shareholders while also ensuring continuity for our residents and associates. In addition, the HCP transactions will significantly reduce the size of our HCP leased portfolio as we acquire communities that would currently lease from HCP, allowing us to increase our owned real estate portfolio. Since the beginning of 2018, Giving effect to the recent HCP transactions, we will have restructured leases with our three largest REIT partners, reducing our leased portfolio by 27%, and will have increased our owned communities to be the majority of our consolidated portfolio. This sets the foundation for a bright future. To summarize our third quarter, I'm extremely pleased with our occupancy and revenue results. Our first priority was to drive top line improvement, and we are delivering on that commitment. While our operating expenses present a challenge, we do expect to deliver results within the guidance range initially introduced in February. Because our business is large and complex, we are introducing some early perspectives on 2020. These can be found in the investor presentation located on our website. we have outlined key factors to build into your 2020 expectations. As usual, we will provide the financial guidance with our year-end earnings call, but the bottom line is that we expect significant improvement in adjusted free cash flow in 2020, even before the one-time positive benefit from the HCP transactions. For further transparency, we are also introducing our five-year company outlook with a 7% NOI CAGR. We believe this will deliver above industry results and will be significantly driven by capturing our top-line occupancy and rate growth opportunities. In addition, we expect both to further improve margins and to generate income by offering incremental new services to our residents. and expanding our addressable market outside our communities. I'll turn the call over to Steve to provide you further details.