Good day, ladies and gentlemen, and thank you for your patience. You have joined Brookdale Senior Living's Second Quarter 2018 Earnings Call. [Operator Instructions] As a reminder this conference maybe recorded. I would now like to turn the call over to your host, Kathy MacDonald with Investor Relations. Ma'am, you may begin.

Thank you, and good morning, everyone. I would like to welcome you to the second quarter 2018 earnings call for Brookdale Senior Living. Joining us today are Cindy Baier, our President and Chief Executive Officer, and Teresa Sparks, our Interim Chief Financial Officer. I would like to point out that all statements today, which are not historical facts including all statements regarding our guidance may be deemed to be forward-looking statements within the meaning of the Federal Securities laws. These statements are made as of today and are subject to various risks and uncertainties. Forward-looking statements are not guarantees of future performance. Actual results and performance may differ materially from the estimates or expectations expressed in those statements. Future events could render the forward-looking statements untrue and we expressly disclaim any obligation to update earlier statements. Certain other factors that could cause actual results to differ materially from our expectations are detailed in the earnings release we issued yesterday, as well as in the reports we filed with the SEC from time-to-time including the risk factors contained in our annual report on Form 10-K and quarterly report on Form 10-Q. When considering forward-looking statements, you should keep in mind those factors and the other risks factors and cautionary statements in our SEC filings. I direct you to Brookdale Senior Living's earnings release for the full Safe Harbor statement. Also please note that during this call we will present our GAAP and non-GAAP financial measures. I direct you to our earnings release and our supplemental information, which may be found on the Investor Relations page at brookdale.com and was furnished on our 8-K yesterday. For important information regarding the company's use of non-GAAP measures including the definitions of each of these non-GAAP measures and a reconciliation of each such measure from the most comparable GAAP measure. 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 second quarter 2018 earnings call. As always, we appreciate your interest in Brookdale. This morning we will provide an update on our turnaround strategy, our second quarter 2018 results and outlook. Before I speak about the three pillars of our strategy, I'd like to take a minute to highlight the Board of Directors announcement we made last night and talk about our recent transaction with Welltower. I would also like to welcome Rita Johnson-Mills to our Board of Directors. Rita brings more than 20 years of healthcare experience including serving as the President and Chief Executive Officer of UnitedHealthcare Community Plan of Tennessee which serves more than 0.5 million healthcare consumers. Her expertise in healthcare operations and strategy will be extremely valuable if we continue to execute our turnaround strategy. As a side note, given that approximately 80% of healthcare decisions are made by women, over 75% of caregivers are female, and 65% of care recipients are female is exciting to see our Board continue to evolve to more closely resemble our customer and employee base. Starting at the top of our organization, we are committed to performance and it has well established the companies with diverse teams are more likely to outperform their peers. I am pleased that we reached a win-win agreement with Welltower at the end of June. As we announced in our press release yesterday, we reflected to Welltower early lease termination in our 2018 outlook. Teresa will provide the details in a few minutes. As a result of this agreement, our contractual rent payments over the life of our leases will be reduced by approximately $600 million. Also we will improve our ongoing cash flows and overall lease…

Thank you, Cindy. My remarks today will focus on three primary topics. First, given our significant announcement with the Ventas and Welltower this quarter, I’ll provide a progress update on the real estate strategy. Then, I will discuss our second quarter 2018 financial results, and finally our 2018 annual outlook. From a portfolio perspective, we are delivering on our real estate strategy to streamline our lease portfolio, while improving our cash flow and opportunistically creating value from select owned real estate properties. We expect the composition of our portfolio to have a higher concentration of owned assets. Let me start the discussion with an update on our real estate strategy and highlight the significant progress with our three largest rate partners. We created a new squad in our most recent Investor Presentation posted on our website. We believe Slide 19 will be a helpful tool to understand our announced transactions and the status of the various pending activity. During the quarter we were pleased to announce several transactions. Later in my remarks, I will discuss how these are reflected in guidance. In April we announced the restructuring an extension of our portfolio of communities leased from Ventas. As discussed in the last earnings call, the transaction improved to near-term cash flow and provides us with the opportunity to streamline the portfolio. In June we announced an agreement with Welltower also focused on improving our ongoing cash flows. Effective June 30, 2018, we terminated early the triple net leases for 37 communities and sold our equity interest in RIDEA joint venture that covers 15 communities. The lease termination fee net of our proceeds from the sale of the RIDEA venture was approximately 23 million. In addition, we announced that we will not renew two master leases covering 11 communities that will…

Thank you, Teresa. We are committed to our turnaround strategy and improving our operating performance for the benefit of the company and for our shareholders. We know we must win locally. In June, about 20 members of our senior leadership team worked in communities across the country. These were not tours. Over the course of a week we prepared and served meals, cleaned rooms, and worked the overnight shift. We walked in the shoes of our community associates, built relationships and gained a better perspective of what needs to be done to win locally. We came back with a renewed focus on what it will take to turnaround our refined company and most importantly provide the best care for our residence. We also came back with the knowledge that we are on the right track. Thank you for your time this morning. Teresa and I are happy to answer questions now. Operator, please open the line for questions.

[Operator Instructions] Our first question comes from the line of Brian Tanquilut of Jefferies. Your line is open.

I guess, the first question for Teresa, just to clarify so as I think about guidance basically you are reiterating everything and everything is basically tracking to your assumptions outside of the Welltower $10 million impact. Is that the right way to think about that?

That is correct. We gave some financial metrics when we announced the transaction and committed to following up with the additional details, which resulted in the impact that we've highlighted in terms of guidance, everything else we are reiterating.

And then Cindy, on this slide that you alluded here earlier Page 9 or Slide 9 with the move-ins and the leads in first visit. How should we be thinking about the fact that if the leads were up, first visits were up, but the move-ins were down in the quarter, like, how are you viewing the lag between first visit to move-ins and what else can you do to drive move-ins in that situation?

So we basically made a lot of changes as we mentioned in our sales profits during June extending our call center hours and that allowed us to increase the number of first visit hand, which I think is good. It does take a lag, between the time someone visits the community and the times they ultimately move-in. So we would expect to see some improvement in the third quarter. I will also say that there is a very competitive environment with lots of new deliveries in the second quarter and we think that is reflected in our results. Moving forward our focus is going to be making sure that we've got the right sales directors in our communities. Making sure that they are getting the right coaching and mentoring so that we can assist our residents on the journey to Brookdale.

And then I guess one other question for me, Cindy in the past you’ve talked about the 30 units that you’ve put up for sale and how there was a limit because of your previous credit facilities. So now that you’ve paid off the convert and presumably you have new credit facility in place. Does that mean that you are able to add to that 30 unit portfolio of assets that you’re looking to monetize?

So the limitation was actually in our credit line and not our converts. We’re very excited to able to repay the converts during the second quarter as we had planned. We still do have the limitation in the credit line. We’re working on a new credit line and we would expect have fewer limitations sometime before the end of the year?

One last question from me, anything in Q3 that you would call out from a sequential basis other than typical seasonality on occupancy? Thanks.

I think that we were pretty happy that we had sequential improvement in adjusted EBITDA and adjusted free cash flow. We were also happy with the sequential improvement that we saw in our ancillary services business. In a very difficult competitive environment we’re happy that we're making progress on executing our turnaround strategy and that starting to be reflected on our performance. Thanks for the questions Brian.

Thank you. Our next question comes from the line of Chad Vanacore of Stifel. Your line is open.

So I'm just thinking about the occupancy statement that you made. So what gives you confidence that you'll gain back some occupancy by year end. And should we expect Q2 to be the lowest level of occupancy in a year you’re sitting somewhere around 84.1%?

Thanks for the question Chad. It’s nice to talk to you. So what I feel good about with regards to occupancies that we’re controlling the things that we can control. There is no question it’s a difficult macroeconomic environment. But in the first quarter and the second quarter, we really focused on executing our turnaround plan and compared to the NIC data I think we outperformed the industry on an adjusted basis when you take in consideration that we have more assisted-living in our portfolios than the rest of the industry. So again I think we had outperformance relative to the industry on a comparable product type. Now if I look at our second quarter, what we saw is June our occupancy improved over May and that trend continued into July which gives me confidence that we’re on the right trajectory to improve our occupancy through the remainder of the year. Now normal seasonality is you build occupancy in Q3 and Q4 is flat to slightly down but I do hope that will end occupancy higher than we are today.

And then just looking at your changing guidance, you laid out nicely that reflects dispositions, lease termination but what core NOI growth expectations are baked in there?

Yes, so Chad the metrics we pointed to really originally issued our guidance with occupancy slightly lower than prior year low single-digit growth on rates all that remains in place. And we had pointed to BHS revenue in the 440 to 460 range that stays in place. So really the only change as we pointed out is really the Welltower agreement.

All right and beyond that have you identified any of the future sales that there is 26 assets that are owned have really not been identified yet. But you got in your Welltower and Ventas agreement you got a certain quantity of rent which the assets were yet to be identified, have you thought about that a little bit more?

Yes, this is Cindy. So the 26 assets we know what the 26 assets that we’re planning to sell are, we’re in the process of marketing those assets and we’ll talk about it later in the year. With regard to the Ventas agreement, we have a team that’s been working on identifying the assets that we would like to have sale sold. We haven’t notified Ventas yet but we’re pretty far along on that and would expect to make some progress on that in the third quarter.

What about Welltower?

Welltower we haven’t identified the assets that we would like to change there. I think that it is something that we're taking in a very focused paced approach. And that’s something that we’ll talk to at a later point.

Thank you. Our next question comes from the line of Joanna Gajuk of Bank of America. Your please.

So this was follow-up on the guidance right, so understand that EBITDA guidance change for the Welltower transaction. But I would have expected that free cash flow I guess guidance would improve because as you talk about it indicated before that this would be free cash flow added as transactions. So is this some sort of offset to free cash flow impact for the transaction this year?

Yes, so when we announced the transactions and provided the details, we felt we had a good handle on the cash flow impact which really the cash flow economics led this deal, they've led both of these deals and it’s been less focused on EBITDA and more focused on the cash flow economics. And so if you’ll touch back to that deck those cash flow economics remain in place what we had needed to provide you on the cash lease payments of 60 million that was in the Welltower deck. We need to provide you with a breakout of operating lease versus capital lease. So you could circle up the EBITDA impact which we've provided. So if you think about the deal having a call it $14 million to $16 million positive cash flow impact, some of that would be realized through rationalization of G&A overtime, that’s not something you would see immediate but over time. And it doesn’t reflect lease escalators in the future which would obviously have a bigger cash flow impact as you think about those agreements that were in place.

The other point that I would make Joanna with regard to 2018 is CapEx isn’t pro rata throughout the year. And so that's something that you need to take into consideration in terms of the timing sometime moves and there are transaction costs associated with any agreement. So, we’re still very confident that will get the adjusted free cash flow benefit but that doesn’t necessarily mean that half of it shows up in 2018.

And then with the G&A changes that how long would it take, should we expect to see some benefits of that earlier in 2019 or should for a little bit later in 2019 to see those really to this Welltower transaction?

I think you’ll start to see that emerge in early 2019.

And then if I may, just sit to closer look here on some discussions around labor cost I understand there are some investment you make here in your labor force but also in the tax here in the press release talking about the ancillary services segment. You mentioned labor cost increases so can you flush that out is there something specifically around just wage pressure or shortages or is it similar to senior housing segment investments that you’re making?

It is similar pressure in terms of the labor force and the investments that we need to make there. One thing I would point out that we also highlighted in the release is that, as we expand our hospice services that very much is has the - attributes of the de novo. So there's some buildup in cost before the patients that flow and that book of business starts to build.

And finally the very last question sort of longer term I guess outlook in a sense of your views around the home health proposal on the Medicare home health proposal and the changes that will be taking place in 2020. So how are you thinking about the impact to the payment rates or the structure they’re calling forward. Are you anticipating changing or reducing exported to home health going forward base on those reimbursement rates?

Now let me start with the good news. In 2019 we’ll see a 1.41% increase in reimbursement that is very good news for the business. Now I’m sure that you know that the patient driven grouping’s model is budget neutral for the industry as a whole. Now because of the unique characteristics or the population that we serve, we do have a lower ratio of nursing to therapy. Now as CMS to couples therapy that will impact our rates. Now there are opportunities that we see to reduce cost as we transition to a new model, increasing our efficiency to things like central intake and consolidating some agencies to reduce our costs. We'll also need to make sure that we focus on recertification as the CMS guidelines move to 30 day episodes. And I think that we will start looking at our Ancillary Services model, our SNIF model, and our home health business, really as a single entity going to market. We are really focused on providing value based solutions and this is what we are focused on for the future.

Thank you. At this time, I'd like to turn the call back over to President and CEO, Cindy Baier. Ma'am?

So I want to thank everyone for joining us this morning, and we look forward to talking with you again soon.

Thank you, ma'am. Ladies and gentlemen, this concludes today's conference. Thank you for your participation and have a wonderful day.