Brookdale Senior Living Inc. Q3 FY2024 earnings call

• Delivered 80 basis points of sequential quarterly occupancy growth, better than the broader industry average and reflecting continued weakness in paid third-party referral sources. - Generated $14 million of adjusted free cash flow in the third quarter, improving cash flow significantly over the prior year. - More than doubled the number of communities operating with Brookdale HealthPlus program and received third-party validation that clinical outcomes are stronger than last year. - Successfully evacuated 13 communities during Hurricane Milton. - Named by Newsweek to the top 200 Most Loved Workplaces list. - Executed purchase agreements for accretive acquisitions of 41 currently leased communities. - Issued new convertible debt while extending a majority of an existing convertible to 2029, enabling funding for acquisitions. - Successfully refinanced the vast majority of debt maturities without extension options through 2026. - RevPAR grew 5.9% over the prior year, adjusted EBITDA grew 15% year-over-year to $92.2 million. - Move-ins improved from the second quarter but remained below prior year, with redeployment of marketing spend from paid third-party referral sources to internal channels. - Brookdale HealthPlus communities had 80% fewer emergency room and urgent care visits and 66% fewer hospitalizations compared to seniors living at home, and 130 communities completed HealthPlus rollouts in 2024. - Announced accretive transactions including acquiring 41 communities, private convertible senior notes transaction, and agency financing transaction, expected to increase adjusted EBITDA by approximately $33 million annually and improve adjusted free cash flow by an estimated $15 million annually following closing.

In the third quarter, RevPAR grew 5.9% over the prior year. Adjusted EBITDA grew 15% year-over-year to $92.2 million, roughly the midpoint of the previously provided guidance range. Resident fee revenue grew 3.7% over the prior year quarter despite a 2.3% or approximately 1,200-unit reduction in capacity since the beginning of the prior year quarter. For the same community portfolio, third quarter RevPAR increased 5.6% over the prior year, driven by 100 basis points of occupancy growth and a 4.2% increase in RevPOR. Same-community labor expense as a percent of revenue improved 140 basis points compared to the prior year third quarter, while same-community other facility operating expense as a percent of revenue was 40 basis points higher than the prior year, largely driven by elevated estimated insurance expense and the outsource of data centers.

• Fourth quarter RevPAR growth guided to 5% to 5.5% over the prior year and adjusted EBITDA in the range of $93 million to $98 million. - Expect fourth quarter weighted average occupancy to be higher sequentially than the third quarter. - Fourth quarter year-over-year RevPOR growth expected to be relatively in line with year-to-date growth trend. - Includes approximately $3 million of fourth quarter hurricane expense. - Immediately favorable adjusted EBITDA impact of recently announced acquisition agreements, reducing cash operating lease payments by approximately $8 million in the fourth quarter. - 2025 strategic priorities: get every available room in service at the best profitable rate, attract, engage, develop and retain the best associates, earn resident and family trust and satisfaction by providing valued, high-quality care and personalized service. Expect steady and sustainable occupancy growth in 2025, with resident rate increases reflective of cost of living and operations.

• Uncertainty regarding the performance of third-party referral sources which impacted move-ins. - Potential impact of interest rate changes on interest expense and financing costs. - Risk of community damages and related expenses from hurricanes and other natural disasters.

Q: How should we think about the competitive dynamics for the third-party referral sources that were pressured? Is it primarily a cost thing or bidding against other competitors for these referrals?

A: Cindy Baier said it's not a cost thing. Move-ins associated with third-party paid referral sources were soft relative to historical trend. Launched incremental sales initiatives and increased internal planned marketing spend, with performance improving sequentially. Year-to-date move-ins consistent with pre-pandemic averages despite weakness in two large third-party paid referral sources. In October, move-ins from these two large third-party referral sources were roughly flat to last year.

Q: What does the guidance imply regarding sequential decline in EBITDA versus historically Q4 EBITDA would increase from Q3?

A: Dawn Kussow said there's variability in expenses such as incentive, insurance and other estimates. The midpoint of fourth quarter RevPAR guidance results in a slight step down in RevPAR on a dollar basis. There are factors like unfavorable hurricane expense, favorable seasonal utilities expense, and better visibility into employee insurance and benefits running higher this year, but total operating expense variability is not that material. Our same-store operating margin has delivered 140 basis points of operating margin growth year-over-year.

Q: On the 41 acquisitions, are the performance consistent across the three portfolios? Or are there any assets you don't necessarily see fit with your current strategy that you could potentially dispose off at some point?

A: Lucinda Baier said performance is different across the assets. Some assets are in high-quality markets, some are smaller communities that may not fit exactly with current strategy. Being able to have more flexibility with the portfolio and recycle capital gives improved opportunities going forward, and the transaction is a solid financial return with potential for further additive improvements in the coming quarters.