Brookdale Senior Living Inc.

financial officer and Chad White, EVP, general counsel, and secretary. All statements today which are not historical facts may be deemed to be foreign-looking statements within the meaning of the federal securities laws. These statements are made as of today's date and Brookdale expressly disclaims any obligation to update these statements in the future. Actual results and performance may differ materially from the foreign-looking statements. Certain of the factors that could cause the actual results to differ are detailed in the earnings release Brookdale issued yesterday as well as in the reports Brookdale files with the SEC from time to time including the risk factors contained in its annual report on Form 10-K and quarterly reports on Form 10-Q. I direct you to the release for the full safe Harvard statement. Also, please note that during this call Brookdale will present NANGA financial measures for reconciliation of each NANGA measure from the most comparable GAAP measure. I direct you to the release and supplemental information which may be found at Brookdale investors.com and was furnished on an 8K yesterday. Now I will now turn the call over to Denise.

Good morning and welcome to Brookdale's second quarter 2025 earnings call. It's a pleasure to be here today as interim CEO. I'm joined by two integral members of the office of the CEO, Don Cusso, our chief financial officer, and Chad White, our general counsel. This morning I'll provide a high-level review of our second quarter results followed by an update on the strategic priorities we outlined during the Q1 earnings call. I also will provide updates on a couple other items of interest. After my remarks, Don will present a detailed overview of our second quarter financials, including guidance ranges and our outlook for the remainder of the year. Chad will join us for the Q&A session. Now for second quarter highlights. Brookdale delivered solid second quarter performance. Despite the backdrop surrounding our annual shareholder meeting, the team remained focused and made progress on improving our operations and financial results. We also continued our ongoing portfolio optimization plan. Same community weighted average occupancy for the second quarter came in at 80.7%, growing 190 basis points over the prior year quarter. June month-end same community occupancy came in at 82.8%, which was 240 basis points higher than month-end occupancy in June 2024. July month-end occupancy came in at approximately 83.3%, which was 260 basis points higher than month-end occupancy in July of 2024. Recall roughly the 80% occupancy mark is a critical inflection point for cash flow generation at Brookdale. While delivering occupancy growth, we also held rate as REV poor on a same community basis grew .4% year over year. Now that our consolidated portfolio has weighted average occupancy greater than 80%, our focus will be on ensuring rate growth outpaces expense growth while not sacrificing occupancy. We are pleased to report that adjusted EBITDA for the company grew .7% quarter over quarter and is up .4% for the first half of the year. Most importantly, we continue to generate positive adjusted free cash flow for the second quarter in a row. Adjusted free cash flow came in at $20 million for the quarter versus a negative $6 million for 2024 second quarter. For the first six months of the year, our adjusted free cash flow is $24 million versus a negative $32 million for the same period last year. Note, our leased portfolio also generated positive adjusted free cash flow for both the first and the second quarters of 2025. Moving on to updates on our strategy. As outlined last quarter, we believe our five part strategy remains central to unlocking Brookdale's intrinsic value. To review each, one, improving operating performance. Operational excellence is critical to the success of Brookdale. Higher occupancy, improved rates, and robust cash flow will generate the capital necessary for reducing leverage and reinvesting in our business. We are working to accelerate profitable occupancy through revenue yield management, disciplined and appropriate expense oversight, strengthened operational accountability, and targeted strategic investment. Last quarter, we outlined a plan to pilot new incentives and pricing promotions to boost occupancy in selected communities. Many translated this statement into Brookdale is, quote, slashing rate, end quote. So I'll try to be more clear this quarter. Brookdale is not slashing rate. We remain focused on profitable occupancy and maximizing fixed cost leverage to grow EBITDA and free cash flow. Maximizing fixed cost leverage means we must maintain an occupancy rate greater than 80% while continuing to ensure rate growth that exceeds expense growth. We saw the results of this effort during the quarter where both occupancy and rate grew over the prior year period. A further indicator of improved performance for the quarter can be seen in our occupancy bands. To elaborate, in Q1, there were 143 communities in our less than 70% occupancy band. That number improved by 10% or 14 communities to 129 during the second quarter. 50 of these are slated for disposition through either lease terminations or asset sales, and 38 are working with our SWOT teams. Of the remaining 41, 19 require only one, two, or three move-ins to advance to the next category. Looking at the other end of the spectrum, those communities with greater than 95% occupancy grew from 73% in the first quarter to 88% in the second quarter, an increase of 15 communities or 21% improvement. Two SWOT teams are now in place covering 137 communities. Team 1 is focused on underperforming high opportunity locations requiring immediate attention. These properties have seen a 350 basis point occupancy increase and 7% repAR growth since Q4 when the team began its work. Team 2 is mainly dedicated to communities that collateralize our upcoming debt refinancing. In this group, we are working to enhance performance to maximize collateral value. These properties saw sequential occupancy growth of 200 basis points and enjoyed 150 basis points of sequential repAR growth since the team began its work in May. We are making progress on structuring a permanent distressed asset team that will move across the portfolio, shoring up communities where performance is starting to wane. With a portfolio of just under 600 assets by the end of the year, there always will be some that need extra care and attention. We expect to have this team up and running by the end of the quarter. We are continuing a rigorous cost review to align our expenses with the size of our portfolio. As part of this effort, G&A expenses were reduced by $850,000 in Q2 versus Q1 and are down $1.2 million from Q24. In each case, G&A expense excludes transaction, legal, and organizational restructuring costs, which does include costs incurred around our annual shareholder meeting and severance. We are aware further progress needs to be made on our cost structure and we will continue to focus our efforts on this area during the third quarter. Number two, optimizing our real estate portfolio. We continue to streamline our portfolio to focus on communities with the strongest long-term value creation potential. As of June 30, Brookdale's consolidated portfolio was at 617 communities, 235 leased, and 382 owned. As announced previously, we plan to exit 55 leased assets by year end. We received the transition schedule for these locations in early July and based upon our review, it appears the communities with the most challenged performance will be transitioning later in the year. This compares to our original assumption for guidance modeling purposes that all communities would transition on October 1. As such, we expect to have additional negative pressure on our consolidated financials during transition time. Dawn has incorporated this new timeline in the updated guidance that she will speak to in a few minutes. During Q2, we closed on the sale of one owned community and the transition of one leased property. Of the remaining 13 previously announced dispositions, all but one are under contract. Also, we've recently identified another 28 assets that will be leaving the portfolio and expect those to transition over the next 12 to 18 months. As with the original 14 community dispositions announced last quarter, we believe the exit of this additional group will result in improved occupancy, RevPAR, adjusted EBITDA, and adjusted free cash flow while generating cash proceeds that can be used for capital reinvestment and debt repayments. Note, of the 41 assets to be sold, 27 are in the under 70% occupancy band. 3. Capital reinvestment. Reinvestment in our communities is essential to maintaining market relevance and quality and to accelerating profitable occupancy growth. In Q2, we invested $49 million into capital projects and have over 500 capital-related projects underway from aesthetic upgrades to larger renovations. 4. Reducing leverage. De-leveraging enhances financial resilience and shareholder value. While it will not happen overnight, we are working to reduce leverage meaningfully through continued adjusted EBITDA and cash flow growth, as well as portfolio optimization. To that end, during the second quarter, we reduced our adjusted annualized leverage from 9.7 times to 9.3 times. Recall, approximately 88% of our debt is non-recourse, secured by property-level mortgages. Upon asset sales, mortgage obligations are fully repaid and excess proceeds may be deployed toward growth, reinvestment, or further debt reduction. As noted earlier, during the quarter, we sold one owned asset, have LOIs or purchase agreements on an additional 13 assets, and have identified another 28 for disposition. As we have demonstrated, we are committed to taking appropriate action to unlock the intrinsic value of our real estate to drive shareholder value creation, and we will continue to look for ways to optimize our portfolio and reduce our leverage profile. Nearly all of our debt is refinanced through 2026, and the team has made excellent progress working with our lenders on the 2027 tranches. 5. Elevating Quality for Residents and Associates Almost 50,000 seniors call Brookdale home, and over 36,000 associates choose to work with us as their employer. This quarter, two of our culinary experts were recognized with Senior Housing News' Dished Dining Innovation Awards. Bethany Johnson, a district director of operations in Florida, was selected by the Florida Senior Living Association as outstanding operator of the year for 2025. Our very own CFO, Dawn Cusso, was inducted into the McKnight's Women of Distinction Hall of Fame class for 2025, recognizing her outstanding talents and service to Brookdale. We are pleased the industry is recognizing the top talent that serves our residents every day. 6. Moving on to Shareholder Engagement and the CEO Search We are grateful that each of our director nominees received the support of a majority of our shareholders at this year's annual meeting, and we appreciate the constructive feedback we received throughout the process. This feedback is instrumental in how we will shape Brookdale's path forward. Management and the board considers the feedback received from all shareholders to be important, and we will use it to further strengthen our governance and our operations, and we will refine how we communicate Brookdale's value proposition. As you review the information contained in our investor deck and supplement, we hope you will recognize many of your suggestions. Lastly, the CEO Search Committee has reviewed approximately 50 potential candidates, casting a wide net across senior housing, healthcare, hospitality, and real estate. The committee and full board have interviewed a number of candidates, and with the annual meeting now behind us, we aim to conclude the process in the coming months. Out of respect for all participants in the process, we will not take questions on the search during today's call. To close, Brookdale's strategy is taking hold and driving improved performance. We are energized by our strong momentum and the promising opportunities for growth that lie ahead. Thank you for your interest in and support of Brookdale. With that, I'll turn the call over to Dawn. Thank you, Denise.

We were pleased with our continued operational progress, particularly with our occupancy growth during the quarter, which accelerated in May and June. Our operational improvements have been meaningful, and we are seeing the changes in our results. As a result of our progress, occupancy and adjusted EVDA exceeded our expectations for the quarter, giving us confidence to raise our annual guidance ranges for the second quarter in a row. We had several operational successes this quarter. Our second quarter consolidated average occupancy of .1% is the first time we have delivered quarterly weighted average occupancy above 80% on a consolidated basis since the first quarter of 2020. The 80 basis point sequential occupancy growth was the strongest second quarter growth since 2022 and is evidence that our operational SWAT teams and other initiatives to drive occupancy continue to be effective. As a result of these efforts, our sequential occupancy growth was better than the industry average, as reported by Nick, and better than the healthcare REIT's consolidated shop portfolio results. Our same community portfolio, which excludes the Ventos transition assets, the 12 assets held for sale, and three other communities, had quarterly occupancy of 80.7%, a sequential increase of 70 basis points. We delivered $20 million of adjusted free cash flow, which is our second consecutive quarter of positive adjusted free cash flow. We also showed continued improvement in our occupancy bands with 14 or 10% fewer communities included in the less than 70% band for the second quarter of 2025 compared to the first quarter, while our over 95% occupancy band also grew by 15 communities or 21%. And we had continued adjusted annualized leverage improvement. As a result, we have improved our annual guidance for both year over year REVPAR growth and for adjusted EBITDA. We are pleased with our continued progress and are optimistic about the remainder of the year. But before I speak to that, I'll walk you through the details of our second quarter financials. I'll begin with second quarter revenue. Consolidated REVPAR grew .1% above the prior year in the second quarter, driven by an ongoing acceleration in year over year weighted average occupancy growth of 200 basis points. Second quarter move-ins were 7% above the prior year and 9% above historic average, while move-out volume was also beneficial to the quarter. Our consolidated weighted average occupancy increased 200 basis points year over year to .1% in the second quarter. Year over year, our monthly occupancy growth continued to accelerate during the second half of the quarter and continued through July with a 250 basis point increase compared to July 2024. We saw softness in our move-ins early in the second quarter. Consequently, we implemented strategic and selective incentives in addition to the other initiatives we've discussed to help drive move-in growth as we entered the important summer selling season. We expect these incentives to moderate as we move forward. June was a very strong move-in month with June consolidated month-end occupancy at 82.2%. The full accretive impact of these positive occupancy results will be realized in the third quarter, while most of cost of the strategic and selective incentives we had in place to help drive outsize occupancy performance in June is reflected in our second quarter results. Second quarter consolidated rev poor grew .4% over the prior year quarter, reflecting both resident rate increases, the ongoing trend of lower resident acuity, and to a lesser extent, the impact of the strategic and selective initiatives. I'll now pivot to same community results. There's 70 communities included in our consolidated portfolio that are excluded from our same community portfolio. Of the 70, 55 are the Ventos lease communities that we will not operate by year end. Second quarter same community rev par increased .8% over the prior year, driven by 190 basis points occupancy growth and a .4% increase in rev poor. Our second quarter same community weighted average occupancy continued to accelerate with 70 basis points of sequential growth, which was significantly better than normal seasonality for this period. Moving to expenses. On a same community basis, expense per occupied unit or ex-poor increased .3% over the prior year second quarter compared to the .4% rev poor growth, reflecting a positive rev poor to ex-poor spread. Nevertheless, we recognize that there is more work to be done. Second quarter same community operating income was .9% better than the prior year, while the operating income margin was flat. There is seasonality associated with operating income margin, particularly as you compare first quarter to second quarter when our labor expense base is impacted by the full impact of annual associate merit increases as well as an extra day of expenses. Remember that 2024 was a leap year with the same number of days in the first and second quarter of 2024, and consequently the second quarter of 2024 did not see the same seasonal operating income margin decline that we typically see from first quarter to second quarter. 2025 results reflected a more normalized year. Now moving beyond same community level results. We continue to see improvement in our general and administrative expense as reflected in our adjusted EBITDA results. As a percent of revenue, general and administrative expense improved 40 basis points to the second quarter of 2024, excluding non-cash stock based compensation expense and transaction, legal and organizational restructuring costs. We remain prudently focused on an appropriate cost structure for the expected changes in our portfolio and are seeing the benefits of these efforts reflected in our second quarter results. Lastly, cash operating lease payments for $57 million. As reported in yesterday's press release, second quarter adjusted EBITDA was $117 million or 20% above the prior year quarter. We're very pleased to have delivered the significant growth in second quarter adjusted EBITDA, which was above internal expectations and analyst consensus estimates and believe it is a reflection of our improving operational performance. To that end, second quarter adjusted free cash flow increased $25 million over the prior year quarter to a positive $20 million. We still expect $30 million to $50 million of adjusted free cash flow for the full year 2025. Notably, both our owned and lease portfolios were adjusted free cash flow positive. As of June 30th, total liquidity was $350 million, a $44 million sequential increase. The primary drivers of our increase in liquidity were a positive adjusted free cash flow and a new letter of credit facility, which freed up capacity on our line of credit. With our strong adjusted EBITDA results, we continue to make progress on our annualized leverage, improving almost half a turn sequentially to 9.3 times. With meaningful adjusted EBITDA growth and the cash flow generation power that comes from 80% plus occupancy, we expect annualized leverage to significantly decline over the coming years, with additional deleveraging to result from the disposition transactions Denise previously mentioned. Lastly, before turning to our guidance, I want to comment on updates to our investor presentation. As we worked with many of our shareholders recently, we have added slide 16 to 18 to our presentation. The slides articulate Brookdale's significant value proposition, given the robust supply and demand tailwinds. With limited new supply and growing demand, we see significant long-term organic growth potential, particularly as we move communities higher in the occupancy bands and drive higher REVPOR and operating income, due to the significant operating leverage of our fixed cost structure. Turning now to 2025 expectations, as reflected in yesterday's press release, given our strong second quarter results, we have improved our annual guidance for both -over-year REVPAR growth and for adjusted EBITDA. We now expect 2025 REVPAR growth in the range of 5.25 to 6% over the prior year. Teams throughout our organization are committed to the plans Denise spoke about to accelerate profitable occupancy growth, and we have reflected that commitment in our expectations. Also reflected in our REVPAR guidance range is the normal sequential step down in REVPOR dollars each quarter of the year, as newer residents generally move in with lower acuity and therefore have a lower care rate than existing residents. We remain optimistic that both weighted average occupancy and REVPAR growth compared to the respective prior year quarters will be even stronger in the fourth quarter of 2025 than we just delivered in the second quarter. Our raised 2025 adjusted EBITDA guidance range of $445 to $455 million incorporates these favorable top line expectations. Our initial guidance for 2025 assumed an October 1, 2025 transition date for all 55 Ventas non-renewal communities to be transitioned or sold. Our revised guidance range give effect to updated expectations on the actual timing of the various transitions which are now expected to have a negative adjusted EBITDA impact of approximately $2 million as compared to our previous guidance. Without the impact of this change, our updated adjusted EBITDA guidance would have been higher by approximately $2 million. To the extent that the transition timeline is not achieved as expected, it may further impact our consolidated results. We remain diligent in our focus on profitable occupancy growth and as a result, we expect continued leverage from our increasing occupancy given the high fixed cost nature of our industry. When thinking about our annual guidance and specifically when modeling the second half of year compared to the first half results, it is important to remember a few factors, many of which are shown on the last page of our investor presentation. As reflected in our revised guidance, one cannot simply double the first half performance to determine full year expectations. First, when considering the day count of the fiscal year, the second half of the year has three additional work days and two incremental holidays compared the first half of the year. This is important because our revenue is largely based upon a monthly resident fee whereas our expense structure is driven by daily expenses, largely in labor, including premium pay for holidays, but also in other operating expenses. Second, the first half of the year includes one full quarter impact of community associates merit increase while the second half of the year has two full quarters of that impact. Third, there's variability in utilities expense between quarters with higher expense in the third quarter due to the hotter temperatures and declining expense in the fourth quarter with moderating temperatures. Fourth, as the official hurricane season begins in June and runs through November, we've assumed a moderate level of natural disaster expenses as we think about our full year guidance. Lastly, note that GNA rationalization savings pertaining to the Ventas transitions will be spread throughout the year with some savings already recognized in the first half of 2025. In contrast, the corresponding operating income step down from divesting Ventas communities will largely impact the fourth quarter. Specific to the third quarter, the impact from the seasonal factors, an extra day and holiday in the third quarter compared to the second quarter and seasonally high utilities is expected to be nearly $10 million of an adjusted EBITDA headwind between the second and third quarters. In closing, we are pleased with our second quarter results and are confident in our strategic and operational plans to support another year of solid adjusted EBITDA growth. We are operating with purpose and are confident in our ability to build sustainable long-term value for our shareholders. Operator, we will now open the call for questions.