Brookdale Senior Living Inc.

Good morning. My name is Rebecca and I will be your conference operator today. At this time, I would like to welcome everyone to the Brookdale Senior Living third quarter 2025 earnings call. Today's conference call is being recorded. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. At this time, I would like to turn the conference over to Mike Grant, Brookdale's Vice President of Investor Relations. Please go ahead.

Thank you, Operator. Good morning, everyone, and welcome to Brookdale Senior Living's third quarter 2025 earnings call. Participating on today's call are Nick Stengel, Brookdale's recently appointed Chief Executive Officer, Don Cusso, our Executive Vice President and Chief Financial Officer, and Chad White, our Executive Vice President, General Counsel, and Secretary. On this call, we will discuss financial results for the third quarter of 2025, as well as updated financial guidance for the 2025 year. We'll also provide you with other general business updates. During today's call, our remarks, including our answers to your questions, will include forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act. 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 the factors that could cause actual results to differ are detailed in the earnings release we issued after market yesterday, as well as in our Securities and Exchange Commission filings, including the risk factors included in our 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, management will discuss non-GAAP financial measures. For reconciliations of each non-GAAP measure to the most comparable GAAP measure, I direct you to the earnings release and to the company's quarterly supplemental financial information, which may be found at brookdaleinvestors.com and was furnished on an 8K yesterday. With that, it is my pleasure to turn the call over to our CEO, Nick Stengel.

Thank you, Mike. Good morning. I appreciate everyone joining us for today's call, my first as Brookdale CEO. This morning, I'll provide a high-level review of our third quarter results. followed by an update on the five strategic priorities originally outlined by the Brookdale leadership team during the Q1 earnings call earlier this year. Before that, I'd like to start by thanking the 35,000 Brookdale associates who provide the amazing care and service every single day and all hours of the day that is the hallmark of what it means to be a Brookdale associate. I would also like to thank the roughly 49,000 residents and their families who put their trust in Brookdale. And finally, I would like to thank our shareholders for their continued support and insight. I'd also like to take a moment and recognize the interim office of the CEO, comprised of our board chair, Denise Warren, our CFO, Don Cuso, and our general counsel, Chad White, who since mid-April of this year jointly assumed the CEO function. This team did a fantastic job of refining and executing Brookdale's strategy in addition to their primary roles during a period of transition. The team remained focused and made excellent progress on improving our culture, our operations, our portfolio optimization, and our financial results. I am excited for the opportunity to work alongside these strong leaders and continue the trajectory they have set Brookdale on. Since joining Brookdale early last month, I've spent my time getting to know our people and culture, getting to know our investors, connecting with our communities and residents, and digging into the business. I'll take a moment now to briefly introduce myself and answer some questions I've heard frequently since joining Brookdale, specifically why Brookdale and why now? Let me start with my background. During my career, I've held executive operational leadership roles across multiple industries, including senior living, healthcare, restaurants, private equity portfolio operations, and hospitality. Most recently, I served as President and Chief Operating Officer of Gentiva, the largest provider of hospice care in the United States, where I led 12,000 associates across approximately 550 locations in 38 states. In addition, I was the COO of Gentiva's predecessor company, Kindred at Home, where I led the largest home health and personal care operation in the United States. In the interim period, I served as the Chief Operating Officer for Sunrise Senior Living, of which many of you are familiar. I also worked at TPG Capital, Marriott, and HMS Host, all in senior leadership roles in operations. Earlier in my career, I served in the United States Air Force for 11 years in a number of positions, including as a Top Gun Instructor Pilot, Flight Commander, and Deputy Director of Operations. One common theme of all my prior roles is a focus on operations, building teams, leading people, and driving for high performance, which all ties nicely to my role here at Brookdale. Now, to answer the question, why Brookdale? I have worked both within and adjacent to the senior living industry for the last seven years, and Brookdale is universally recognized as a leading company in the space with a matchless reputation for providing compassionate service and care. Given its place in the industry and its exceptional potential, it is truly a privilege and an honor to join Brookdale at this moment in its history. Furthermore, as I got to learn more about the company through the interview process and my own review, it became evident that there were a handful of meaningful opportunities within Brookdale that closely matched my experience. I made the decision to join because I felt that I could help lead the company in unlocking the intrinsic value of Brookdale by unlocking these same opportunities. And I would like to share a couple examples. First, earlier in my career, I worked for the Boston Consulting Group, where I spent an entire year on a single strategic pricing project. I also spent half a year on a separate project with another client implementing the use of promotions to drive market share. This experience really taught me the power of pricing, the need for analytical rigor, and more importantly, the need for discipline in the implementation of pricing action. While Brookdale does have a targeted approach, I can already see that there's much more that can be accomplished in this space to optimize both occupancy and profitability. Another observation is how Brookdale has deployed its free cash flow. While this has been constrained in the past, today, Brookdale is generating positive cash flow, and there's an opportunity to use that cash flow to drive the business. While serving as COO at Sunrise Senior Living, I saw firsthand the power of how deliberate CapEx deployment can directly tie to occupancy growth, underpin growth in room rates, improve resident satisfaction, and expand NOI. At Brookdale, we will spend approximately $170 to $175 million in CapEx this year and can already see that there are opportunities to spend it more deliberately towards NOI driving projects. The next question is why now? There are historically strong tailwinds in the senior living industry underpinned by both sides of the free market coin, strong demand and limited supply. The baby boomer silver tsunami is undeniable. The leading edge of the tsunami begins in 2026 as the first baby boomers turn 80 years old and begin to enter the sweet spot of the typical age that residents move into senior living. At the same time, the growth in supply in recent years has been severely stunted, with new construction starts at record lows and development and construction timelines continuing to expand. Given current construction costs, extended construction timelines, and elevated borrowing we expect new supply to remain muted for years to come. This is particularly true in the price points in markets in which Brookdale mostly competes. Wrapping this all together, the senior housing industry is sprinting towards a period of real scarcity. And it's exciting to lead a company that is the third largest owner and the largest operator of such a scarce resource. Let's turn now to third quarter highlights. where Brookdale delivered another solid performance. Many of the positive trends seen in the first half of the year continued into the third quarter. Specifically, I would like to call out two highlights from the quarter, our improved occupancy growth, as well as our strong adjusted EBITDA. And we'll ask Don to provide more details. Number one, our occupancy for the quarter achieved a weighted average of 81.8%. and 82.3% on a same community basis, its highest level since the beginning of the pandemic in Q1 2020. And we closed the last day of the quarter with a consolidated occupancy of 83.8% and 84.0% on a same store basis. As you will recall from our prior calls, for Brookdale, there's a meaningful inflection point for cash flow generation due to the fixed cost leverage in our operating model that begins around the 80% occupancy mark. So we are excited about our progress. It is noteworthy to highlight some specific efforts that contributed to this occupancy growth. We've previously discussed our SWAT team approach to improve performance across our lower occupancy bands. This effort is picking up steam. In Q1, we reported 143 communities that had an occupancy below 70%. In Q2, we reported 129 communities below 70% occupancy, and this quarter we have further reduced the count to 89 communities below that threshold, an improvement of 38% in just two quarters. Of these remaining 89 communities that are below 70% occupancy, 26 are slated for disposition through either lease terminations or asset sales, and 22 are working with our SWAT teams. That leaves 41 remaining communities. And of those, 16 need only one to three move-ins to exit the sub-70% occupancy band. At the top end of the range, communities with occupancy greater than 90% grew from 154 in Q1 to 169 in Q2 to 192 in the third quarter. This represents a 25% improvement, and now roughly 32% of our total community count is above 90% occupancy. Our SWAT teams are improving operational performance and deploying capital in a way that directly ties to occupancy and EBITDA growth. The teams are also taking a very targeted approach regarding rate to ensure our REVPOR outpaces our expense growth in these communities. The second item I want to highlight is that our adjusted EBITDA in Q3 increased 20% over the prior year. and is up 23% year to date. Brookdale again generated positive adjusted free cash flow amounting to $21.8 million in the quarter, which is an increase of 57% as compared to prior year. Based on the strong performance in Q3 and our outlook for the remainder of the year, we are raising our guidance for 2025. For full year 2025 adjusted EBITDA, our guidance moves from a range of $445 to $455 million to a revised range of $455 to $460 million, an increase of $7.5 million at the midpoint of the range. While I do plan to conduct a more comprehensive analysis of Brookdale's strategy in the coming months and to share my conclusions with our investors, we continue to make progress against the five-pronged strategy shared in our first quarter call. And all of these components will remain central to unlocking Brookdale's intrinsic value. As a reminder, those five elements are number one, improve operating performance. Number two, optimize our real estate portfolio. Number three, reinvest capital into our communities. Number four, reduce leverage. And number five, elevate quality for residents and associates. On the first item, improve operating performance. I already shared our improvement in occupancy across our portfolio, as well as our EBITDA growth. Much of the progress through the end of the third quarter is a result of our SWAT team approach, targeted pricing actions, and a focus on operational accountability. Additionally, at the beginning of the fourth quarter, we implemented a new regional operating structure, which we expect to further accelerate our operational results. The new structure is designed to focus the entire company from our headquarters down to each of our communities on delivering operational excellence. One concern we sometimes hear is that Brookdale is a national company that does not have the ability to be as nimble and focused as smaller regional companies. Our recent organizational design places all operations under a single leader, who in turn leads six regional vice presidents. Each of these six new regions has their own dedicated functional support leaders that span sales, clinical, HR, recruiting, FP&A, asset management, dining, and other functional roles. In effect, these six regional leaders act similarly to a general manager, having direct ownership of their specific business. We are in practice six operating companies of roughly 100 communities each that are tied together with the resources provided by a central support team in the form of our community support center. On our second strategic objective, optimizing our real estate portfolio, we continue to streamline our portfolio to focus on communities with the strongest long-term value creation potential. By the middle of 2026, we anticipate that we will have a portfolio of approximately 550 communities. As of September 30th, Brookdale's consolidated portfolio was at 623 communities, 221 leased and 372 owned, a reduction of 14 leased and 10 owned communities since mid-year. As announced previously, we plan to exit a total of 55 leased assets by year end. 43 of those are now complete. We remain on pace to transition the remaining properties this quarter. From the original group of 14 dispositions we announced in the first quarter, all but four have already been completed. and those four are currently under contract and expected to close by year end. For the second group of 20 assets that we announced in the second quarter call, about one-third are already under contract or LOI, and we continue to expect that the remaining closings will occur during 2026. As we previously stated, the exit of these groups of assets 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 required debt repayments. Note, of the 32 assets remaining to be sold, 18 are in the under 70% occupancy band. During the third quarter, we invested $33.4 million into capital projects in our communities, in line with our third priority of capital reinvestment. We have several hundred capital-related projects underway, ranging from first impression aesthetic upgrades to larger renovations. Our SWAT teams continue to prove that targeted capital investment, where it matters most for existing and prospective residents, can have an outsized impact to occupancy and EBITDA growth. Our fourth strategic objective is to reduce leverage. Brookdale's adjusted annualized leverage at the end of the third quarter was 9.0 times adjusted EBITDA on a trailing 12-month basis. a vast improvement over the 9.9 times at the end of last year. We will continue to reduce leverage meaningfully as our adjusted EBITDA continues to grow. Notably, 88% of our total debt is non-recourse debt secured by property level mortgages. Nearly all of our debt is refinanced through 2026, and our team has made excellent progress towards working with our lenders on the 2027 tranches. As I come close to the end of my prepared remarks, I would like to highlight that we plan to hold an investor day early in 2026 to share far more specifics on how these priorities are progressing and provide visibility into the results we expect to deliver over the next several years. In the interim, I'd like to share a brief perspective on how we view our momentum today. As I shared, our SWAT team efforts are working and our ability to deploy targeted CapEx in specific communities is generating outsized REF PAR and EBITDA growth. Each quarter, we are passing the 80% occupancy inflection point at more of our communities, whereby the marginal adjusted EBITDA flow through naturally expands because of the tremendous operating leverage inherent in our business. At the same time, as more of our communities move into the higher occupancy bands, our pricing strategy will continue to migrate towards driving rate, particularly in our highly occupied communities. With our established and expanding positive performance, we expect to deploy more of the cash we generate towards first impressions and other capital improvements that are directly tied to future adjusted EBITDA expansion. Putting all of these factors together, we are projecting annual adjusted EBITDA growth in the mid-teen percentage range over the next several years on our ongoing portfolio. This will in turn naturally reduce our leverage ratio each year, and we expect to achieve a ratio of below six by the end of that period. We are confident in the intrinsic value of the company, and we intend to accelerate our operational and financial performance improvement as we optimize our footprint and thereby continue to create durable and sustainable shareholder value. To conclude, I'm very excited to be at Brookdale. particularly at this inflection point for the company and the industry. We have a lot of work ahead of us, but the opportunity is there, and we have already proven that we have the capability and momentum to capture that opportunity. There's a strong future ahead for Brookdale for our team members and for our shareholders. Now it is my pleasure to turn the call over to our CFO, Don Cusseau, for more details on our financial performance and outlook.