Brookdale Senior Living Inc.

Good morning, ladies and gentlemen. My name is Phyllis, and I will be your conference operator today. At this time, I would like to welcome everyone to the Brookdale Senior Living Fourth Quarter Earnings Release Call. All lines have been placed on mute to prevent any background noise. We will open the lines 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, of Investor Relations.

Thank you, and good morning, everyone. I'd like to welcome you to the fourth 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 file with the SEC from time to time, including the risk factors contained in our annual report on Form 10-K, and quarterly reports on Form 10Q. 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. 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. Welcome to our fourth quarter and year-end 2019 earnings call. We have made great progress on our strategic plan, which I introduced in early 2018. This morning, I will highlight some of the many milestones we achieved during 2019. I will also provide you with the highlights of our 2020 outlook. Starting with 2019, we delivered results within or better than our original guidance range. In the fourth quarter, on a same community basis, we continued to see positive momentum of top line growth and improved cost control. Our strategy to win locally is working. Since we announced our turnaround strategy, we have consistently delivered on our guidance targets. we have successfully navigated transformational changes to reshape our business and better position Brookdale for positive senior demographics and anticipated industry tailwinds. I will summarize 2019 in three sections, people, portfolio, and performance. I'll start with people. At our core, Brookdale's business depends on people taking care of people. I have enhanced the leadership team to make sure that we have the right team to drive near-term and future growth. Cindy Kent, Executive Vice President and President of Senior Living, is our most recent addition to the team. Cindy has a proven track record of collaboration with payers, physician groups, and hospitals to innovate and grow her business. She was most recently at 3M's Infection Prevention Division, and before that, she held global commercialization roles at Medtronic and Eli Lilly. Given the rapid change in the healthcare industry, Cindy's strategic insights will prove invaluable as we look to accelerate our growth. As healthcare systems continue to shift from a fee-for-service to a value-based, outcome-driven model, building deeper relationships with healthcare providers and payers will allow us to attract new residents more quickly and to improve the quality of our residents' lives. In her first month, Cindy has visited over 20 communities and has begun a deep immersion into our business. Her knowledge and skills will complement the deep bench strengths of senior housing expertise Over the past year, we have also strategically added leaders with specific skills that are critical to drive long-term growth. Diane Johnson-May, Executive Vice President of Human Resources, has a strong consumer focus and significant experience attracting and motivating a large workforce across many locations. Anna Jean O'Neill, Division President of Healthcare Services, a proven hospice leader, has brought an intense focus on patient-centered care to our healthcare services business. Rick Wigginton, Senior Vice President of Sales, has 14 years of demonstrated success in senior housing sales. Chris Bam, Senior Vice President of Information Technology, has deep IT experience within the healthcare industry and a proven track record of change management. These leaders are part of our industry meeting team of 58,000 associates who are devoted to taking care of residents and patients every day. Despite the tightest labor market in 50 years, nearly 70% of our executive directors have been in their role for more than two years. They are choosing to stay with Brookdale. We are pleased because two years is a critical threshold for resident relationships and financial success of our communities. Our 2019 success extended beyond the top leaders of our communities. Over 3,000 former associates returned to Brookdale. In addition, Forbes named Brookdale as a best in state employer in Tennessee, where our corporate office is located. These facts are proof that our culture and strategy of winning locally have taken hold. I am very proud of our associates and the progress we've made in building the best team in senior living. In addition to having the right team driving the business forward, Brookdale Ford has gone through a significant transformation. In fact, over 60% of our board members are new since we established our current strategy in early 2018. The board has added healthcare and hospitality experience to our strong base of real estate expertise and other skill sets. Together, our board has the experience to provide valuable oversight as we execute our strategy and achieve strong returns for our shareholders. As you know, Vicki Freed and Guy Sansone are the most recent additions to our board, having joined us last fall. Guy now serves as our non-executive chair, effective January 1, 2020. Turning to our real estate portfolio, we have significantly simplified our business and completed the vast majority of our portfolio restructuring. We have achieved our initial goal of monetizing assets netting $250 million of proceeds and went beyond expectations with the sale of our unconsolidated CCRC venture. In 2019, we reduced our community portfolio by 14%. Our portfolio is now a third smaller than it was after we completed the emeritus merger in 2014. Our portfolio restructuring created numerous interim management agreements. In 2019, we reduced managed communities by over 50% as we successfully provided smooth transitions to new operators and reduced management agreements where they don't fit our business model. In October 2019, we announced an agreement with HealthPeak to unlock significant value through the sale of our interest in the unconsolidated entry fee CCRC venture. The deal closed at the end of January 2020. we will miss the long-term relationships we had with many of the residents. In particular, I want to thank Ken Gerritsen, who served as the chairman of our National Resident Advisory Council. I also want to thank our Entry Fee Associates for their dedicated service and wish them the best as they move forward serving the HealthPeaks communities. We successfully deployed a portion of the proceeds to convert leased assets to owned communities, which improved our owned to leased portfolio mix. At the beginning of February 2020, 60% of our consolidated units are owned. The final update on our 2019 initiatives relates to our capital investment program to enhance the quality and protect the value of our portfolio and further supports our long-term growth strategy. 2019 was the first year of a two-year incremental CapEx investment program. As a reminder, the incremental community-level CapEx investments include major building infrastructure projects. We completed 742 major projects. In 2019, we invested a total of $236 million in non-development CapEx. As Steve will discuss in the 2020 Outlook section, this year's investment will be smaller due to the significant progress we made in 2019. Now, let's turn to the performance of our ongoing operations in 2019. To provide you with some context, at the beginning of 2019, new community openings outpaced demand and drove top-line pressure across the senior living industry. A year ago, We predicted that by the end of 2019, the industry would see supply-demand equilibrium. According to NIC, the industry equilibrium occurred in the second half of 2019. This is the first time independent and assisted living combined achieved equilibrium since the fourth quarter of 2015. Assisted living is the largest part of our business. Therefore, we were pleased that, in 2019, the industry's assisted living absorption hit a record high and outpaced supply for the first time in seven years. We expect this trend will continue in 2020. In addition, more baby boomers are entering senior living communities. The silver wave represents 9% of our residents and approximately 15% of our move-ins. For Brookdale, this represents a great opportunity for the next few years. Focusing on the fourth quarter 2019, NIC senior housing occupancy increased 20 basis points on a sequential basis. Brookdale again exceeded NIC by increasing 30 basis points on a same community basis. Brookdale's RevPAR on the same community basis increased 20 basis points sequentially. On a year-over-year basis, RevPAR grew 2.1% for the fourth quarter and 1.9% for the full year. This is strong evidence that our strategy to turn around senior living operations, drive top-line growth, and win locally has been and will continue to be successful. Turning to operating expenses, we delivered on our commitment to enhance our underlying control of costs in the fourth quarter, especially overtime labor. Steve will provide the details, so we'll only share two financial highlights. Fourth quarter 2019, same community labor expense was 50 basis points lower than in the third quarter, which resulted in a full-year labor growth of 5.5%, coming back within our full-year expectations. As a result of our team's focus on operational efficiency, our same community operating income increased 7% in the fourth quarter on a sequential basis. Finally, while our healthcare services business continued to face headwinds in the fourth quarter, our new leadership team made crucial decisions to improve our business, prepare for the new PDGM model, and set the foundation to return to growth. In summary, for 2019, we have delivered positive sequential occupancy since the second quarter and outperformed the industry's occupancy for the second half of 2019. Our financial performance has improved accordingly, and now I'll turn to the guidance for 2020 and a few summary comments about this year's expectations. We expect rev par growth of 3% to 4% on the same community basis, which is at a higher rate than last year. We expect adjusted EBITDA to grow on a year-over-year basis the first time since the emeritus merger. We plan to deliver significant improvement in adjusted free cash flow in 2020, even before the positive one-time $100 million benefit from the health peak transaction. With that, I'll turn the call over to Steve.