Thank you, and good morning, everyone. I would like to welcome you to the Fourth Quarter and Full Year 2018 Earnings Call for Brookdale Senior Living. Joining us today are Cindy Baier, our President and Chief Executive Officer, and Steve Swain, our Executive Vice President and Chief Financial Officer. I would like to point out that all statements today, which are not historical facts including our earnings guidance may be deemed to be forward-looking statements within the meaning of the Federal Securities laws. 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 other factors that could cause actual results to differ 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 reports on Form 10-Q. 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 both GAAP and non-GAAP financial measures. For reconciliations of each non-GAAP measure from the most comparable GAAP measure, I direct you to our earnings release and supplemental information, which may be found at brookdale.com/investor and was furnished on our 8-K yesterday. 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 fourth quarter and year end 2018 earnings call. This morning, I'll provide a progress update on the strategy, which I introduced in early 2018 as well as our outlook. After we terminated the strategic review in February 2018, we launched our turnaround strategy and successfully executed on business changes that are significant and transformative. We also renewed the focus on our mission and our associates, who are so critical to delivering care to our residents. We delivered results within our guidance ranges. Steve will provide the details of our financial results. So, let me highlight how our focus on operations laid the foundation for these results. We set the operational foundation with a focus on winning locally, which unified and became the rallying call for the Brookdale team. On a parallel path, we spent an extraordinary, yet necessary amount of time on our real estate strategy. Last year, we made real estate initiatives a priority to position Brookdale for future success. For our owned portfolio, by year end, we sold assets generating proceeds of $193 million net of debt repayment and transaction costs, and we are nearing completion to sell other communities in line with our $250 million goal. We restructured 89 restricted leases and move to more objective change in control provisions. For the managed portfolio, we transitioned numerous communities that were being operated under interim management agreement to new operators. To give perspective, we terminated management agreements or disposed off 131 communities during 2018 with the majority occurring in the fourth quarter. I am proud of what our team accomplished. For the past several years, there has been speculation about whether Brookdale became too big to be successful, so let me…

Thank you, Cindy. My remarks today will focus on the three primary topics. First, highlights of the fourth quarter and full year 2018 financial results. Second, given the importance of last year's real estate initiatives, I'll provide an update on our progress. And finally, I will expand on Cindy's comments about our 2019 guidance. Starting with a few highlights. We achieved a full year financial results within our 2018 guidance. We saw same community revenue improve on both a year-over-year and sequential quarter basis, driven largely by late increases. We drove mark-to-market pricing positive in the fourth quarter. This means our new resident's rent was greater than an existing resident's rent. This positive mark-to-market occurred for all three product lines: independent living, assisted living and memory care and shows that our price discipline is working despite strong competition. We saw our independent living occupancy increase to 90%, which was a 50 basis point increase from the third quarter to the fourth quarter and a 110 basis point improvement for the full year. We committed to and executed on our 2018 financing strategy. We paid off the convertible senior notes, lowered the credit facility borrowing costs and increased flexibility in our capital structure with Freddie Mac financing, and we are nearing completion to achieve our real estate net proceeds goal. These achievements in the first year of our turnaround highlight good progress, especially in the context of industry oversupply and wage pressures. Let me talk in more detail about our real estate initiatives that we announced last year. Starting with our owned portfolio. We are nearing completion of our goal of $250 million of proceeds, net of debt repayment and transaction costs. By the end of 2018, we had closed on community sales providing net proceeds of $193 million. Specifically in…

Thank you, Steve. I want our shareholders to know that we are in a strong position and we are also seeing positive data points in the industry. Recently, NIC reported an improved forecast with independent living occupancy projected to flatten and assisted living annual inventory growth and absorption to intersect in 2019. We believe in the positive trend in senior housing as the crest of a Silver Wave is approaching. We are committed to the multi-year digital roadmap I introduced in February 2018, and we are committed to our turnaround strategy. Let me close by saying that, we are the leader and we always aspire to be the nation's first choice in senior living. We have an unwavering commitment to our residents, patients and their families and we are proud to serve America's seniors. Steve and I are happy to answer questions now. Operator, please open the line for questions.

[Operator Instructions]

And as the operator is polling for questions, Steve will address one question that we received overnight.

So, thanks, Cindy. The question is regarding run rate EBITDA growth. To estimate run rate EBITDA growth, you could start with fourth quarter pro forma, the pro forma number found on page 15 of the investor deck. The fourth quarter pro forma reflects among other things, the most recent occupancy rate and expense levels. Annualized fourth quarter adjusted EBITDA of $107 million gets you $427 million. Due to lease accounting adoption, adjusted EBITDA will decline $27 million, which nets to $400 million. $400 million is the start of our adjusted EBITDA guidance range. Then add your assumptions for rate increase, occupancy, timing of community dispositions and other factors in our guidance page. The middle of our 2019 guidance or $412.5 million equates to approximately 3% run rate growth in adjusted EBITDA. We're now ready for our first caller.

And your first question comes from the line of Jason Plagman of Jefferies. Your line is now open.

Hi, good morning. And thanks for that last clarification. That was going to be my first question about the core EBITDA. That was very helpful. So just digging into the detail. I know you don't guide quarterly, but anything that we should keep in mind as far as the cadence of EBITDA throughout 2019 from, as we flow through the year?

Yes, thanks for the question. The EBITDA cadence should be, should mirror prior years, so I think that's a good start point. As far as free cash flow, I want to remind you that there will be some variability in the free cash flow as we're including working capital in our numbers this year and I'm looking at historical numbers. The first quarter is generally a use of cash, last year for instance, it was a $30 million use of cash.

Okay, that's helpful. And then, as far as the CapEx program, can you just describe what some of the major type of projects that you're undertaking there? And then, do you expect any operational disruption or income statement impact in 2019 from those projects?

Hi Jason, thanks for the question. This is Cindy. So our major projects really include end-of-life projects, like roofs, pavement, HVAC, water heaters with the building integrity around exterior paint, the building envelope and the skin, windows, doors plumbing and drainage. We got life safety, including nurse call systems, fire suppression that sort of thing. And then we do have some resident enhancement which is, landscaping walls and fences as well as exterior lighting that gets added to some apartment refurbs and that's partially offset by lower corporate CapEx. Now we have a plan to capitalize on the fact that we're investing our, in our communities and a partner duct campaign is coming. Usually what happens when you invest CapEx your community is that you improve associate retention rate. And actually, it's something that's exciting for both the residents and new prospects, and so we're hoping that we can capitalize on our CapEx.

Okay, that's helpful. And then last one from me, I know this will be in the 10-K, but you commented on the NOLs have been part of the, as part of the strategic review. Can you, where do those stand today? I know that several years ago Brookdale was trajectory to become a cash taxpayer within a few years, but I would guess that's been delayed?

On the, over these planning periods, a multi-year planning period of about three years, we don't foresee needing to use our NOLs.

And then just to absolute level of the NOLs from as of the year, end of year?

It's little over $1 billion. It's little over $1 billion.

Okay, thanks. That's it from me.

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

Hey, good morning, all.

How are you, Chad?

Thank you, Cindy. Just looking at your lease portfolio, you saw a sequential improvement in occupancy. But then, comparing that to the owned and managed assets that have a sequential declines in occupancy from last quarter. So was that leased portfolio, was that primarily related to HCP lease terminations still by shedding some low occupancy assets, you've improved overall? Or is there something else going on there?

So, essentially the HCP leased portfolio does have something to do with it, but it really relates primarily to the competitive economic condition around the communities.

All right. So in some of those communities, you're actually seeing a lighting of competition?

So if you look at our investor presentation, you'll see that in Q4, our starts were elevated around our communities. There's no question that, that had an impact on occupancy as well as the retention rate of our sales directors. We saw some turnover in sales directors that was attributable to competitive activity. And so, the good news is that we do see the industry's supply pipeline decreasing and we've got line of sight into Brookdale's supply pipeline based on our proprietary analysis. And we think that near the end of 2019, new opens around our communities will improve.

Okay. So, you had a busy year in terms of dispositions, restructuring, I think you mentioned 137 communities. How much more is assumed in 2019 guidance? And then what's reasonable timeline. And then one ancillary is question is, you say adjusted guidance is roughly up 3% or so. How much of dispositions effect that guidance one way or another?

So, let me start with the big picture, and then Steve can kind of jump in. As I look at our portfolio restructuring, we certainly have the 13 assets that are included in assets held-for-sale. In our agreements with both Ventas and Welltower last year, we had the ability to slightly prune those portfolios. We have reached an initial set of assets that we would like Ventas to market and they are working on marketing those. That's likely coming in the back half of the year given the time to do the marketing and transition. So I don't see massive changes in our portfolio other then the exit of interim management agreement structures. As you know, when we terminated leases last year, we took over management of the communities until the landlords could find a new operator and that's something that we would expect to happen more in the first half of the year then the second. Steve, do you want to add anything to that?

That's right, Cindy. The, and you can also see the assets held-for-sale, the impact on our P&L, so that's on page 15, that is column C. And although it has a fair amount of revenue impact. When you get down to EBITDA, it's relatively de minimis on our total EBITDA number for the company.

Thank you so much. Your next question comes from the line of Josh Raskin of Nephron Research. Your line is now open.

Thanks. Good morning. I guess the question really is, we've gone through over the last couple of years attempting to sell our strategic alternatives and all that sort of stuff, obviously nothing came of that. And now, it sounds like there was this whole PropCo/OpCo analysis with the external advisors and it doesn't sound like that's actually a value enhancing strategy. So it really comes down to operations at this point. And I guess, one thing I don't get it. I don't feel a sense of urgency on cost controls. We're still hearing about bonuses and investments and I think G&A was actually going to be up on a same-store basis in 2019? And so, I'm just curious what initiatives, what am I missing here, because I just, I can't imagine that's the case. There has to be some sort of offsetting factor. So maybe a little bit on the G&A and how you guys are thinking about these investments and when the payoff starts to come?

So Josh, let me start. So, we are very focused on cost control. Let me start with G&A first, we cut $25 million of G&A in our 2018 plan and we made the adjustments to G&A at the end of the year. We get another reduction in force and that's largely behind us which will benefit sort of 2019. But it is important to recognize that people have a compensation package that includes a bonus and based compensation, those bonuses did not fully pay in 2018. We have high expectations and we want to make sure that we're paying for performance. So when we budget for 2019, we are baking in a full bonus into our guidance. Now if we don't deliver our numbers, our G&A will come down because we will not pay a bonus. Now the second thing that you need to remember is, in our communities, our communities have a very high fixed cost structure and think about the investments that you need to run a community, that's a step function. When you shrink occupancy below a certain level, you can't cut costs. You still need to operate your community 24x7. You still need to have nursing and staff, you still need to serve three meals a day in your dining room. And so, when we improve revenue and occupants, when we improved occupancy which we will, there's roughly a $20 million improvement to both adjusted EBITDA and adjusted free cash flow from the improvement in occupancy. To the extent that we're able to drive rate faster than our costs, then that's a $25 million improvement in both adjusted EBITDA and adjusted free cash flow. That's why we are so very focused on the competition around our communities, putting the plan in place to deal with that competition and making sure that we have the right associates in our community. One thing you may not realize is, because we have to have people on staff. If we have too much turnover, we have to go to overtime and contract labor because we cannot leave our residents without and nurse on staff and we have to serve three meals a day. So believe me, we're focused on cost control, but we have to invest to turn around the business, because under investment has hurt our occupancy and hurt the growth profile of our business.

Now I certainly understand the idea of fixed cost business and staffing ratios, etcetera. So I certainly appreciate that. I guess that kind of leads into a second question of mine, which is around the competition. We're hearing some of the healthcare REITs have made some commentary around potential, I wouldn't call it, well some have said inflections in the market, now calling it a trend yet, but you are seeing slightly better results kind of industrywide. So, and I understand the AO/IL mix relative to the industry, et cetera. But do you think there are other factors as to why Brookdale seeing more of a lag? Why is the competition still so pervasive in your specific markets relative to what we're hearing from some of the larger REITs?.

So let me start by saying, I agree with what the REITs are saying. They're absolutely right about an improving competitive environment. If you look at our independent living business, we were over 90% occupied in the fourth quarter, that's a sequential improvement as well as a year-over-year improvement. It's important to note that our consolidated results are reflected by an even higher concentration of AL and memory care then our managed communities, all the communities that we manage, Including our owned and leased. So what we're seeing is, in the primary market, there's still a lot of competition. Our secondary markets are improving and we are seeing improved results as a result of that. So we believe that, if you look at the comparable, we're doing quite well. And that is why we're so confident by continuing on the path that we laid out and making the investments that we need to make to compete effectively. We are going to drive value for our shareholders.

Got it, got it. And then third question just for me. And I apologize for the questions. But one and sort of off topic, more sort of long-term positive opportunities. We saw interesting announcement from a couple of senior housing providers that are sort of coming together with a company that's happening put together medical advantage plan. And to me that's sort of the ultimate move and kind of taking risk or bundle payments and you guys have this big ancillary services business, obviously, it hasn't been doing very well. Are you thinking about more dramatic opportunities to take advantage. Again, now that you kind of set your real estate, you're not selling the company, you're got this captive audience in my opinion of seniors. Are you guys thinking about different types of opportunities in I guess healthcare services what used to be ancillary?

Absolutely, absolutely. So if you go back to what I said in February of 2018, the first thing that we have to do is to get our existing portfolio to where we have a right to win. We have to improve the operation in those communities and then we have to deliver additional products and services to the residents in those communities. Medicare Advantage is one potential opportunity for us, whether we do a plan on our own or whether we partner with a third-party. It's services that our residents need and it's gaining traction sort of in the United States. So as you see us go through 2019, you'll see us be more vocal about the long-term things that we can add to our business to drive incremental profit, cash flow and value to our shareholders.

Thank you so much. Your next question comes from the line of Joanna Gajuk of Bank of America. Your line is now open.

Good morning. Thanks so much for taking the question. So two questions here on the CapEx rate. So the $250 million that's of net, I mean that's net of the REIT funding. Correct?

That is correct. Thank you, Joanna.

And then you plan to use essentially the profits the $190 million you already received, I guess the fund, is that correct?

So the $193 million comes under cash balance. I view cash is fungible but it's fair to say that a portion of that will fund the CapEx investments that we're making that are critically necessary for our communities to operate effectively.

Right. And then so the way I'm thinking about it, is the $75 million sort of increased "19 versus ' 18 enough. I mean, should we expect the $250 million kind of level CapEx for '19 to come down in 2020?

So that's a good question, Joanna. We see sort of an increase between 2018 and 2019. We think 2020 will come down from 2019, 2019 will be a high watermark, but we do not think that, or the 2020 will be less than 2018. So think of it as between 2018 and 2019 and that's where we think 2020 will come in.

Okay, that makes sense. And then the other item in the guidance to talk about the labor costs outlook for, this line item to grow 5% to 5.5% in '19 after it was up 5%. I understand that you're making these investments for us to glean into what actually is included there? I mean, what's the kind of underlying labor costs inflation in your markets, i.e. if you exclude these incremental investments, what's the kind of run rate growth there? Or is there even a way think about it that way.

So, I think it's fair to say that normal wage inflation is that 2.5%to 3% and that is something that's not terribly different. We've got some markets that are much higher than that and we've got some markets that are lower. And there are a few components that are really going into our wage increases, some is wage rate, some better benefits. And then of course, you've got to look at the labor that we have for resident day.

All right. If I may squeeze the last question on the Ancillary services or the Healthcare Services segment. So obviously margins were weak and I guess you're making some investments in them. But do should we think about the margins for 2019 and beyond? So it sounds like you made some changes already to Home Health business ahead of the PDGM in 2020. But even with that, do you think you already have the right mix, given how the reimbursement would change? Or you think there's going to be incremental pressure to margins in 2020? Thank you.

So the good news is that, with the changes that we made to our business in 2018, we're in line with the industry as it relates to nursing and therapy ratios, where we still have to focus for 2020 is in the level of services that we provide. And so, as you look at new payment model, there's no question will have an impact on revenue, but we expect to reduce cost by a similar amount, so that we keep our margin dollars consistent. And so you'll see us continue to look at how to compete effectively and adjust our business to capitalize on the opportunities that come from that.

Thank you so much. And your next question comes from the line of Frank Morgan of RBC. Your line is now open.

Hey, it's Antoine Hie on for Frank Lot of mine have been addressed, but I wanted to come back and get a bit of clarification on at least two items here. Just hoping you could, you mentioned that you think quarterly EBITDA cadence will be similar to 2018. But referencing back to the assumptions built into the guidance that occupancy improved throughout the year. Could you just help square that up as the occupancy improving throughout the year? Is that just sort of, on normal progression of occupancy or is that suggesting that maybe we see some of the environment improving as some of these construction deliveries slowdown down throughout the year.

Yes. Thanks for your question. The occupancy assumptions that we assumed in the year 2019 forecast follow the trends we've seen over the past couple of years. So some pressure in the first quarter and then grows throughout the rest of the year. So that would lead you to a better EBITDA as you go throughout the year. Just remember that in the first quarter January 1, is when we had our rate increase for our in-place residents. So that will be a tailwind there.

But it is fair to say that you did the rate increases in January 1st and then there's a little bit of mark-to-market that goes throughout the rest of the year. We were positive in Q4 because we pulled our rate increases forward. But as you think about sort of how that affects the year, normally, you do see rate deteriorate a little bit during the year as a result of new residents coming in.

How is the reception to pulling those rate increases forward a bit?

We do it pretty much every year. Now the difference with this year's rate increases that they were larger than normal and so we were very happy that we were able to sustain good rate. We believe that if we protect the rate, that will be the most important thing to drive value and we haven't really seen an increase in resident attraction as a result of higher than normal rate increases. Now, I think that our residents understand that we have to pay to have the right staffing in their communities and to get the right associates. We've actually had residents like pay people more. And so as we explain the reasons for the rate increase, they tend to understand. And as you would expect, because we are large and we are industry's leader, we had a comprehensive program to train all of our executive directors onto how to communicate with residents about the rate increase and explain the rationale for the rate increase they received and why as well as, why it was necessary for us as a company to do. And that's happened very well, I think.

Okay. And then, Steve, offering the EBITDA kind of run rate. I mean obviously that's top of mind for everybody with '19 being another sort of rebuilding year if you will. So, but we kind of start with the $400 million ish jumping-off point from the fourth quarter pro forma annualized. But I think once we add back like, am I right, the 27 million is a one-time issue from the lease accounting adjustment then we add back in kind of unconsolidated ventures. Is this unreasonable to think 475 is a reasonable sort of run rate stepping into 2020 and to grow from there?

And when you add, when you add both the consolidated and the JV that's above the top of our $425 million and $40 million are the top ends of our guidance ranges.

But it's fair to say that the $27 million hit will happen only in 2019, so that will not recur in 2020. So it's appropriate to add that to your model as you think about what 2020 looks like?

2020 and beyond. Correct.

Okay, great. Thank you. And then one final one, and you touched on this a little bit earlier. But could you talk about what you're seeing in some of the secondary markets where construction deliveries are stopping or slowing considerably, kind of what you're seeing in your communities there?

You can see that we are improving in the secondary markets and we have a slide in our investor presentation, page 11, that shows the secondary markets and kind of some of the occupancy trends relative to the primary markets. So that's something you can dig into in great detail.

Okay, thank you.

Thank you very much.

Thank you. And your next question comes from the line of Dana Hambly of Stephens. Your line is now open.

Hi, good morning. Cindy, you talked about this year being a big focus on the move-ins and just looking at one of your slides, I think the leads in the fourth quarter were stable, first visits up a little bit, move-ins down a little bit. With 2018 a year of discovery on becoming more efficient on converting leads to move-ins? Or is 2019 going to be where you start to pay more, pay more attention. But you start to learn more about becoming more efficient there?

I think we had a lot of learnings in 2018 and we're very happy that we've got the strategy right in terms of how to grow, grow move-ins. It's fair to say that in the fourth quarter, we suffered from turnover due to competition from our sales directors and we also saw our lead flow from our large aggregator decline a bit. And our large aggregators tend to convert much more quickly, albeit at a lower rate. And so that affected our move-ins in the fourth quarter. Now, I think that I'm really excited about the realignment of sales under Mary Sue Patchett. Sales will still report to sales, which I think is critically important. But what our operations team is amazing at is execution. So we've got the strategy right now at execution, we will add additional coaching and mentoring for our new sales associates because we know that our first year sales associates, it takes them a while to come proficient. So we're adding additional training, we're adding additional support and certification so that they can get it right. We've also been a little bit more prescriptive on how you sell the value of Brookdale at each of the different product types. To that, they can add a local focus of why their local community is best. But having a little bit more support from the corporate folks about why our memory care is industry leading. We have better programs than anyone else. Why AL is better than other competitors, because of the size and scale that Brookdale offers. So we're pretty excited about what we're going to do with move-ins in 2019.

Okay. And then, Cindy you mentioned the aggregator? Is that a permanent move or is that something you experimented with in the fourth quarter?

It wasn't a move by Brookdale as much as it was, the leads that we saw come in from the aggregator. So it's private company. So we don't necessarily know what they saw in the aggregate. All we know is that the leads that they sent Brookdale were lower. And as you would expect, we've got an action plan to make sure that we are getting more than our fair share of leads. And once we get those leads, we convert faster than anyone else and we make them happy new Brookdale residents.

Okay. And then there was, I think on one of your pages on the shareholder value creation, there was a note in there about technology investments that would enhance the resident experience and lower costs? I don't know, can you shed any light on that or is that or is that top secret?

It's not necessarily top secret, but we continually look at ways to use technology to help our residents and it could be anything from monitoring to monitoring to, monitoring our slips, trips and follows to just making sure that they have our WiFi that is robust enough. So they can communicate with their family and friends and loved ones.

Let me also add, one of the things that I'm excited about is the rollout of our electronic residency agreement. We've been working on this for quite some time now and we've tested it in some of our communities going really well. Our new residents bills, it's a pain point in the industry because they are complicated by allowing us to capture data electronically as resident signs the residency agreement that will improve resident satisfaction by improving the quality of that first bill and making sure that it's right. So that's just one example of what we're doing to make sure that we're focused on delighting our residents and really improving our customer service.

Yeah. Is that rolled out or you're just starting to roll that out now?

The pilot have been successful and we are working on rollout plans during 2019. So I'm pushing the team very hard and they are going to be as aggressive as the can about getting it into our communities.

Okay. All right. Last from me, I appreciate all the color on the CapEx with a lot of questions there, so I obviously know 2019 and have an idea 2020. But just longer term, how do you think about just maintenance CapEx or community CapEx on a per unit level. I think it runs around $2000 in 2017 and 2018, obviously bumping up the next couple of years. But longer term, what's the right number to think about?

Yeah. I think it's likely above that $1800 that we talked about previously, but below sort of what we're spending in 2019. I want to get much more granular than that. We will come out with additional information as time passes. But that's definitely a thumbnail on what you can expect.

All right. That's helpful. Thank you very much.

Thank you so much.

Thank you. And Cindy it's over to you the closing remarks.

We are now in one year in the execution of our turnaround plan and we're pleased with the posted results in line with our guidance range. As we reflect on the improvements that were made and we have continued to make in our business along with signs for improvement in supply and demand. Everything that we have seen to this point affirms our belief in our strategy. Over the last year, we made great progress to restructure leases and optimize our portfolio and we focused on our team on a few key operational initiatives and they are starting to show success. As evidenced by our controllable move-outs experience. We are very confident that our sales and operational initiatives for 2019 will only help to further the progress of our turnaround. We are also seeing evidence that the supply demand equation will improve within the next year and we are excited about the tremendous demographic tailwinds that is coming over the next few years. Health care spending will only continue to increase and we will play an important role both within senior housing and healthcare. With the combination of our industry-leading position, our plan to win locally and the silver wave approaching. We firmly believe that we will be well positioned to drive operating leverage and create significant value for our shareholders. Thank you for joining us this morning. Operator, that ends the call.

Thank you so much presenters. Have a great day.