Brookdale Senior Living Inc.

Hello, everyone. Thank you for joining us and welcome to the Brookdale Senior Living second quarter 2026 earnings call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. I will now hand the conference over to Mike Grant, Brookdale's Vice President of Investor Relations. Mike, please go ahead.

Thank you, Operator. Good morning, everyone, and welcome to Brookdale Senior Living's Second Quarter 2026 Earnings Call. Participating on today's call are Nik Stengle, Brookdale's Chief Executive Officer, Dawn Kussow, our Executive Vice President and Chief Financial Officer, and Chad White, our Executive Vice President, General Counsel, and Secretary. On today's call, we will discuss Second Quarter 2026 results as well as our financial guidance for the 2026 year. will also provide 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 described in our annual report on Form 10-K and quarterly reports on Form 10-Q. I direct you to the earnings 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, Thank you, Mike, and good morning, everyone. Thank you for joining us on this morning's call and for your interest in Brookdale Senior Living.

Thank you so much for joining us. Thank you for joining us today. 2. Optimize our real estate portfolio 3. Reinvest capital into our communities 4. Reduce leverage 5. Elevate quality for residents and associates I would like to take a moment and describe our recent progress on the first three points. On point number one, improve operating performance. Our consolidated REVPAR for the second quarter increased 8.2% over the prior year, which is in line with the anticipated quarterly pacing we discussed last quarter. This meets our 8-9% full-year 2026 REVPAR growth guidance, and we continue to expect an accelerated rate of growth for the second half of this year. Breaking apart the components of REVPAR, our second quarter REVPOR – Revenue Preoccupied Room or pricing – remains strong. Our second quarter consolidated rev pour increased 5.2% over last year. As a reminder, we took high single-digit pricing at the start of this year, and we are now beginning to lap the price concessions taken last year. On the occupancy side of the equation, second quarter consolidated occupancy landed at 82.4%, up 230 basis points year-over-year and a 30 basis point sequential improvement from the first quarter of 2026. Candidly, our occupancy growth thus far in 2026 has not inflected as quickly as anticipated, but with our new operating structure and team in place, as well as the actions we have taken, we see underlying improvement that is beginning to bear fruit, as shown through our July occupancy results, which I will cover in a minute. Additionally, given where occupancy stands through mid-year, we have taken steps to ensure that our cost base is scaling in line with our occupancy levels. During the second quarter, we continue to realize improvement within our occupancy bands. Thank you for joining us. Year over year, we had stronger improvement as 281 communities were below 80% in the second quarter of last year. We are taking targeted actions to drive accelerated improvement in those levels through the second half of the year. We are now entering the heart of the summer selling season and our initiatives are taking hold. As referenced earlier, July occupancy marked a strong acceleration, up 30 basis points sequentially on a same community basis and up 20 basis points sequentially on a consolidated basis. Our month-end occupancy results were also strong. up 30 basis points sequentially for same community and up 40 basis points sequentially for consolidated. This improvement represents our 57th consecutive month of year-over-year occupancy growth. While we are encouraged by the pace of our move-ins and overall occupancy over the last two months, we recognize that we can do much more and as a result are taking further actions to drive improvement. To that end, a key action in the past quarter was the hiring of Margaret Cabell as our new Chief Sales Officer, filling the vacancy we have had in this role since the first quarter of this year. I'm really excited about adding Margaret to our executive leadership team. She brings over 25 years of senior housing experience. While most of this experience has been in sales leadership, she also has meaningful operational and P&L ownership experience, which bolsters our new organizational structure that fully aligns operations with sales. Most recently, she served as Chief Community Relations Officer and Head of Sales for A Place for Mom, which, as many of you know, is the leading senior care referral service in the United States. In the short period Margaret has been with us, we are already seeing measurable changes in key sales-leading indicators to include conversion ratios, sales yields, and improvements across our referral channels. Thank you for joining us today. Thank you for joining us. In fact, we now see additional opportunities to improve labor productivity in the second half of this year, so we would anticipate increased operational leverage over the significant expense driver looking forward. I would also like to take a moment and discuss strategic objectives number two and number three, which are our portfolio optimization and capital deployment strategy. As we discussed at our Investor Day, Brookdale is now positioned to take a more offensive posture as it relates to the deployment of capital, given the positive industry environment and Brookdale's significantly improved financial health. Looking at uses of capital, our North Star is to make acquisitions and to invest in projects that bring our shareholders high returns and that correspond to our portfolio strategy, which is to stay within our existing product types and our geographic market footprint. I'll provide more color on both our community and reinvestment as well as recent acquisition activity. During 2026, we are increasing reinvestment in our existing communities through a program we call First Impressions. First Impression projects are significant, targeted CapEx investments with a focus on upgrades to community common spaces, including improved flooring, updated lighting, new furniture, and repositioning various areas to be more active and engaging to residents. These upgrades improve visitors' first impressions, hence the name, of our communities and help drive occupancy through higher tour-to-move-in conversion ratios. These investments also support higher in-place rate increases and decrease future repairs and maintenance expenses. Overall, we see high ROI paybacks on such projects, and we have described three recent representative community reinvestment examples in our investor deck on slide 19. We expect our first impressions reinvestment to become even more prominent starting in the third quarter of this year, and investment in the second half of 2026 will be roughly double our first half pace. Overall for 2026, we anticipate completing around 30 first impression projects with budgets of greater than $250,000. The average spend on our significant first impression projects is roughly $500,000 to $600,000. Aligned with our capital deployment and portfolio strategy, we're excited to have recently announced two separate acquisitions. The first is the acquisition of the Brookdale Galleria Community in Houston for $23.4 million, which closed at the end of June. We're thrilled about this opportunity. We previously managed the Galleria Community under a long-term management contract, so we know the property and its occupancy dynamics exceptionally well. The community is in the affluent Galleria Submarket of Houston, adjacent to High End Shopping, so it is well located in a market where Brookdale has meaningful density. At 244 units, it's a large community, and we were able to purchase it substantially below replacement cost. From an operational improvement perspective, the Galleria opportunity is compelling to us. The current occupancy at the Galleria community is lower than our Brookdale average. We will be investing additional capital in addition to significant renovations that have recently occurred to reposition the community. Most importantly, we have already closed the skilled nursing operations at the community and expect to replace those units with additional community amenities and other configuration improvements designed to take advantage of market demand and drive improved economic performance. Now, as the owner rather than the manager, operating income expansion will accrue to the benefit of Brookdale and our shareholders. The second is the planned acquisition of 17 communities that we currently lease in a triple net arrangement. These 17 communities are in markets where we have meaningful operating density, and we know these markets and buildings well. Thank you for joining us. and bring us down to four remaining lease portfolios which, in their own right, are producing positive cash flow. Importantly, this transaction is expected to increase our 2027 adjusted EBITDA and cash flow. We plan to fund the acquisition with a mix of non-recourse mortgage financing and cash on hand. Both of these acquisitions further bolster the fact that we are the third largest owner of senior living real estate, after only Welltower and Ventas. As I shared during our investor day, we are an operating company, but we are a company that is built upon a foundation of highly specialized real estate, and this real estate is becoming increasingly scarce with each passing quarter. Pulling all these points together and following our in-line second quarter, we reaffirm our 2026 annual guidance of 8% to 9% REF PAR growth and adjusted EBITDA range of $502 to $516 million. Thank you for watching. Thank you for joining us.