Good morning ladies and gentlemen. My name is Harry, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Brookdale Senior Living's Third Quarter Earnings Release Call. All lines on mute. We will open the lines for questions at the end of the call. As a reminder, this conference call will be recorded for replay purposes. I would now like to turn the call over to Kathy MacDonald of Investor Relations.

Thank you, and good morning. I like to welcome you to the third quarter 2021 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. All statements today, which are not historical facts, 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 of the factors that could cause actual results to differ are detailed in the earnings release we issued yesterday as well as in the reports we file 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 the release for the full Safe Harbor statement. Also, please note that during this call, we will present non-GAAP financial measures. For reconciliations of our non-GAAP measure from the most comparable GAAP measure, I direct you to the release and supplemental information, which may be found at brookdale.com/investor and was furnished on an 8-K yesterday. Now I will turn the call over to Cindy.

Thank you, Kathy. Good morning to all of our shareholders, analysts and other participants. I hope that you and those you care about are safe and sound. Welcome to our third quarter 2021 earnings call. In the third quarter, occupancy sequentially increased 200 basis points and more than doubled the second quarter sequential increase of 90 basis points. The growth in the third quarter was our largest average occupancy increase in at least the last six years. Including October, we now have an eight consecutive month trend of occupancy growth and we are building for our long-term success. Combining our occupancy growth with a robust RevPOR. For the third quarter RevPAR was within 1% of the prior year quarter. With our strong sequential occupancy growth we continue to win the recovery. Even with the wax and wane of the pandemic we continue to see positive momentum of top-line growth. In addition to our top-line growth we continue to strengthen our liquidity from several recent and significant transactions. In July we increased liquidity by more than $300 million as we successfully completed the 80% sale of our home health, hospice and outpatient therapy business to HCA Healthcare. We retained 20% of the newly formed venture to benefit from the future growth of this business. The second significant liquidity strengthening transaction closed on October 1st. We executed a $230 million convertible notes offering that was significantly over subscribed. Steve will highlight our plans to use these proceeds. My final financial highlight, but certainly not the least is that strong September month end move-ins allowed us to deliver results better than our third quarter expectations. Our positive financial results are only possible because of the dedicated efforts of our amazing diligent team who work 24x7 to help keep our residents safe and engaged.…

Thanks Cindy. There are three key takeaways related to our financial results. First RevPAR. I am pleased that third quarter year-over-year RevPAR was within 1% of the prior year quarter. In addition, we outpaced the industry's occupancy growth on a sequential basis. The strong quarterly sequential occupancy gains we've made this year with continued price discipline are driving the business forward. Second, operating expenses. Sequentially G&A savings from the HCA Healthcare transaction helped mitigate a sizable portion of the higher community labor expenses, Cindy mentioned. The resulting adjusted EBITDA increased 5% sequentially. And third, liquidity. We are pleased with the actions we've taken throughout the pandemic to fortify our balance sheet and enhance liquidity. With the completion of the HCA transaction liquidity increased more than $250 million in the third quarter. And we recently issued $230 million of convertible nodes which were significantly oversubscribed. This capital raise was the first step in our proactive refinancing plan. The second step will be to refinance the first quarter 2022 maturities, which I'll discuss a bit later. Now let me provide context for these highlights starting with revenue on a same community basis. RevPOR or rate was more than 3% higher than the prior year on both a quarter and year-to-date basis. We continued to see industry discounting during this pandemic-related lease-up period. In the third quarter we used targeted discounting where necessary to remain competitive, while maintaining overall rate discipline. Consistent with this strategy the third quarter RevPOR was slightly lower on a sequential basis. Combining rate with occupancy growth in the third quarter we were close to turning RevPAR positive on a year-over-year basis. In fact the CCRC segment delivered year-over-year revenue growth. Turning to operating expenses. On a sequential basis labor expense was higher mostly due to the difficult labor…

Thank you, Steve. The health and well-being of our residents and associates is always our top priority. I am inspired by our everyday heroes and their efforts across our entire organization from community to corporate associates. Their dedicated efforts help keep us the number one choice in senior housing. I'm pleased with the progress we've made from a business and financial perspective since the onset of COVID-19, and I look forward to our continued success. We have taken significant steps to support our operations and improve our liquidity in order to go beyond just weathering the storm to setting the foundation to advance Brookdale into a firm position of strength and to accelerate future growth. Thank you for joining us today. And I look forward to sharing our continued progress in the near future. Operator, please open the line for questions. Thank you.

Thank you, Cindy. [Operator Instructions] Our first question is from Tao Qiu from Stifel. Tao your line will be open now if you'd like to proceed with your question.

Hi, good morning. Congrats on the fast road of the booster clinics. So I wanted to first dive a little bit into the 4Q guidance. I think it suggests a sequential increase of maybe $0.5 million to $5.5 million. Just wanted to understand a bit more on the assumptions there. I think, Steve you mentioned that you expect occupancy gross to drive higher adjusted EBITDA, but also acknowledge normal seasonality. So how should we think about the range of occupancy that would get you to the high end and the low end of that guidance? And are there any assumption of any cost efficiencies either on the OpEx side or the G&A side in fourth quarter?

Tao, good morning and thank you so much for your questions. We are so excited about the progress that we're making on our COVID-19 vaccine clinics. Our team is just working literally around the clock to get our last clinics completed. Seve will answer your questions on the outlook.

Yep. Morning Tao. So, you're right. This is the first time we've provided guidance since the pandemic started, which we're excited about. An occupancy, we do expect sequential occupancy growth and that anticipates kind of the normal seasonal trends around the holidays. Now we do have four out of the six months of occupancy already in the books and we'll continue to provide occupancy updates each month for the rest of 2021. But kind of considering relatively small even occupancy growth in November and December, I will get you to the occupancy growth rate from third quarter to fourth quarter that you can model. Rate just kind of ticking through the revenue growth. We expect rate to be flattish to slightly lower on a sequential basis. And then expenses, we're still in a competitive labor environment which is challenging, and we expect labor expenses to be slightly higher in Q4. Now that said, we do believe the competitive labor environment to be transitory and we're starting to see some early green shoots in that regard. So net-net, we do expect occupancy growth to drive higher sequential EBITDA, higher NOI and then that will fall through to EBITDA if you assume kind of flattish to slightly better G&A.

Thank you. Just wanted to understand a little bit more on the labor dynamics there. Are there any differences that you are seeing in markets where the supplemental unemployment benefits have ended and those that have not. And in terms of your agency over time using the fourth quarter, do you expect that to be higher than 3Q or would that normalize a little bit too?

Yes. Those are really good questions. There's no question that the federal supplemental unemployment put a lot of pressure sort of on our business in that a worker could in many cases make more sitting home on their couch than they could actively working. What we saw after the federal supplemental unemployment ended is we saw an increase in applications. We saw fewer people sort of ghosting us in terms of not providing accurate information for an interview or just not showing up for the interview. And what we're seeing is the labor market is intensely competitive and the challenges throughout the economy are pretty pervasive. But the pressure really is in nursing staff, as well as in hourly positions. So, we're responding to this very dynamic labor market appropriately. We're actively reviewing wages and adjusting them where necessary to remain competitive. Now our belief is that as we do this we will be able to reduce contract labor and overtime. But it's going to take a little bit of time and we still do expect to see those being elevated in the fourth quarter. Now if I look at sort of our turnover and hourly positions, we've made progress from the peak. So we saw improvement in September and that improvement continued into October. So I do believe that some of the unemployment benefits rolling off has been helpful to us. And we are seeing just a little bit more pressure in urban markets, but in our rural markets there's a smaller pool of talent.

Got you. And one final question from me. We're seeing for your residents social security benefits is expected to grow 5.9%. I think that's the highest growth since 1982. How do you feel about the ability to raise rates coming January on your existing residence. Hopefully if you can pass on some of the cost increases? Thank you.

Yes. There are three factors that I think will help us increase rates. I think you've mentioned one which is our seniors are seeing increases in their monthly social security checks, that's important. I think the second is that we're seeing occupancy in the industry firm up. And when that happens it's much easier to push rate. And then third and finally with the cost pressures around labor, the easiest way to convince a resident that a rate increase is necessary is to explain to them that you need it to pay more to the people who are taking care of them. And so, those three things are key factors that will help us increase our rates as we go into our January first rate increases.

That's great. Thanks for the color.

Thanks so much, Tao.

Thank you, Tao. Our next question is from Josh Raskin from Nephron Research. Josh your line is now open. Please proceed.

Thank you.

Good morning, Josh.

Good morning, Cindy. What percentage of your facility operating expenses are labor? And does that very much AL verse IL or I guess memory care. I assume there's a little bit more there?

Yes. As you would expect in IL, that has the lowest percentage of labor, because it's really a hospitality model. And there's not the same level of personal care that you have in either assisted living and memory care. And as you step up the care continuum from IL to AL you have more in labor and then from AL to memory care you've got more in labor there. Steve, you want to talk a little bit about the percentage question that Josh raised.

Yep. You bet Josh. Generally speaking it's kind of in the 65% range, 65% to 70% range labor as a percentage of total OpEx. Now, you can see that on page 10 of the supplement where we break out labor expense IL, AL and CCRC separate from OpEx and you'll see the various trends there.

Perfect. And then you mentioned construction and I think six year lows and that sort of stuff. But I am curious if there's any anecdotal discussions in specific markets. Do you think that there are signs that developers are looking for kind of what do you think the next steps there are? Because to your point, demand seems to be coming back and that typically elicits more construction?

Yes. If I ook at sort of the industry and at Brookdale, what I'm really excited about for Brookdale is it starts around our communities are down 88% [ph] and they're lower than the peak. And so I think that is something that is incredibly good for us and presents a tailwind for us for the next few years. I also think that some of the inflation that we're seeing and the labor pressures that we're in seeing will also make it harder for sort of new projects to get completed. Because if you think about the value of having pre-existing portfolio, which we do that's already priced in. The cost of building a community is going up every single day with labor inflation and their supply chain disruptions that are preventing materials from being delivered on a timely basis and target workers to do the work. So all of those things I think are going to play to our favor and strengthen the tailwind for the future.

Got you. That makes sense. I hadn't really thought about the construction labor component of that and then obviously they've got to staff the facility as well. So maybe that slows things down for a little bit. And then just lastly on the vaccines, I heard two numbers. I heard a 95%, but then I heard a 90% of eligible employees. I'm curious what eligible employees means? And then do you have data at this point now we're a couple quarters out in terms of move-in or close rates or sort of success rates for highly vaccinated communities versus ones where there's a couple hold outs?

Yes. Let me start by saying the 95% of residents is -- that's a 100% of the resident population and over 90% as of this morning was 94% when I checked it just before I came in of eligible associates. And what that means is we take out the very small percentage of people who already have an approved religious or medical exemption. So we're just finishing the last stages of our vaccine mandate. We're grateful that we are ahead of the government requirements that apply to workers over a hundred or companies with over 100 workers. So I think we're in great shape as it relates to the vaccine mandate. What we've seen is that prospects. Residents have an appreciation for highly vaccinated communities and that's been good for us. I don't have specific numbers to share with you. But I can say that a vaccine mandate is good for our residents and our associates.

Got you. And I'm sorry to squeeze in the list. But the 94% of the eligible employees. What percentage of your employees are not eligible through medical or religious exemption?

It's a very small percentage, very, very small.

Okay.

Thank you.

Thank you very much, Josh. Our next question is from Brian Tanquilut of Jefferies. Brian your line is now open if you'd like to proceed with your question.

Good morning, Brian.

Good morning. I guess Cindy my question for you, just more strategically or philosophically for the longest time you've held your ground on rates and knowing or seeing the RevPOR decline sequentially in Q3. Just wanting to hear your thoughts on that. the shift in thinking there and how we should be thinking about your ability to or interest in holding price going forward if this is a one-quarter aberration or if this is more of a dynamic trend?

Yes. I don't think it's at all a shift in strategy. Our strategy is always to get every unit in service at the strongest rate possible. What we do recognize however is that there's a fine balance between driving occupancy and driving rate. And so, if you're in an environment that is very competitive it may be necessary to use a discount to grow occupancy. And so, what we've seen in particular is independent living has had a little bit more disruption in sort of the prospects that are coming to that portion of the industry, but it also had higher occupancy because it had a longer length of stay. So we've been very targeted in the third quarter as always about when to use a discount so that we can try to drive the highest possible revenue per available room.

Got it. And then a nice thing about staffing. I know don't want to be a dead horse here. But do you think that the cost structure has reset now and this is the right baseline to be using or is this a temporary kind of bonus driven or kind of like artificially inflated the number that should revert back to more normalized level over time?

So, when I think about it and Steve will add some things to it. I think that the number has a lot of variables in it. And I do think that the base wage, the hourly rate of workers will be higher in 2022 than it is in 2021. But I think there are some things that will offset in part that higher wage increase. And one is contract labor. We have used more contract labor in 2021 than we historically have, because of the extra pressures put on our team because of COVID-19 whether it was the vaccination clinics whether it was the special resident care areas or whether it was just the disruption caused by the economy restarting. So that's driven contract labor and overtime. I also think that with turnover being higher really in the second quarter and the first part of the third quarter that caused us to do a lot more training hours. And I think if we get our retention back to -- retention and turnover back to our historical norms we'll have fewer hours that we have to use for that training that just comes from bringing new people on board. But net-net our labor will grow in 2022 relative to 2021. But there's a lot of things happening underneath that number.

Got you. And then last question for me. With all the puts and takes since you called out your expectation for labor next year without giving guidance, I mean, do you think that Brookdale will be able to grow EBITDA in 2022 versus 2021?

Good morning, Brian. So without giving guidance I can give you some top of the ways for 2022. We believe occupancy, it will grow in 2022. RevPOR is expected to increase really to as we've already discussed to reflect the inflationary environment we're in, which means, a higher than average rate increase and Cindy gave you three reasons why we should expect that. And as far as expenses go, we've mentioned that the labor expense we expect to be transitory. That said, we do have wage pressure due to the tight labor market. But we do expect that Cindy just mentioned to be partially offset by lower contract labor expense, which is already in our run rate. So a lot of puts and takes, but we do expect EBITDA to increase in 2022. In a few months, of course, I'll give you more details on the 2022 guidance.

Yes. And Brian, just to add just a little bit context behind with Steve said. NIC have their Fall Conference earlier this week. I didn't attend I should say. But out of the industry articles that came out of it, it seems like there was a pretty wide-spread discussion about the need to have higher rate increases in 2022 than they traditionally have for a lot of reasons including labor. So, I don't think we're the only people of thinking about how to increase rate in 2022 given sort of the environment that we're operating in.

Awesome. Thank you guys.

Thanks Brian.

Thank you, Brian. Our next question is from Steve Valiquette from Barclays. Steven your line is now open. Please proceed.

Good morning, Steven.

Good morning everybody. Good morning. I think at this point every critical topics then touched on here including that last question kind of hit on what I want to touch on. But just the follow-up anyway. I was surprised by your comments around still having rate pressure in the industry in 2021. You made that comment that when occupancy is firming up and that sets assets a better environment for rate increases across the industry. My thought was that we've already seen accuracy firming up six month already. I would thought price would've been irrational already? That's all fine. There's no question there. I guess, my question really at the end of day is which you've touched down little bit is, is there a sense for operators that there could be just kind of a sea change in the mentality from calendar 2021 to calendar 2022. If the industry is sort of in the process of setting rates for 2022 right now at least for renewals et cetera. Could there be a change? And then, maybe just be more direct about this. If you had to predict right now what you think this senior housing industry RevPAR growth will be in 2022 versus 2021. What number range would you put on that right now for 2022 for the industry? Thanks.

Okay. That is a very direct question. What I'll say is that I'm optimistic about a strong RevPAR growth rate. And the reason I'm optimistic is because I do think the industry will have above average occupancy growth in 2022. Quite honestly, we have lower occupancy than we traditionally have had. And there are a lot of reasons to believe that occupancy will grow. The supply environment is better because there's a lot supply. The demand environment is better because starting next year there's at least a million new potential customers in the market. For Brookdale, our brand awareness is high, because we got two times the unaided brands mentions in our next closest competitor and we got really high customer satisfaction as evidence by the J.D. Power awards. So, I think in the industry you'll see occupancy growth. But I also think rate is going to grow for all the reasons that we've talked about. So without giving you a specific number I do expect strong RevPAR growth in 2022, and I think it will be one of the best years in the industry's history.

Okay. All right. That's helpful. Thanks.

Thanks Steven.

Our next question is from Joanna Gajuk from Bank of America. Joanna, your line is now open. Please proceed.

Thank you for taking the question here. So if I may just a very last one follow-up on the labor cost discussion and staffing. So, I appreciate the commentary that you think [Indiscernible] but anyway for us to get a better sense of the magnitude of things here in terms of how much of your labor costs was contract labor versus overtime, just so we could get a sense how we should think about kind of those numbers kind of normalizing. And maybe you can frame to us as it compares to historical, because it sounds you have used contract labor to some degree, but obviously now its much higher. So kind of any framework around those metrics would be helpful?

Good morning Joanna. I can say that we've never used as much contract labors as we have in 2021. And that is due to all factors that I mentioned earlier. Steve, is there anything that you want to add to Joanna's question?

Joanna, we kind of bucket higher than normal overtime and contract labor in the kind of in the same bucket if will. And that needs to replaced by regular productive or labor hours. So that's less of a detail that I look at. I look at just over and above regular productive labor hours. I can - we'll give more detail I think for 2022 coming up during the fourth quarter earnings call.

Okay. That makes sense. I guess any quantification in terms of like is it -- was it like 5%, 10% of your labor costs or any way you can frame it, that will be helpful. So thanks for that. I guess we'll look into early next year to talk about this again. But my other question was about CapEx. So I understand that you're working on your budget for next year. But anyway or any kind of framework in terms of CapEx outlook for next year, because also you continue to expect the $140 million for this year for non-development CapEx, but then it sounds like development CapEx was lowered. So are there projects being pushed out into next year and what are these projects? Are you expecting acceleration in either of these buckets for CapEx? Thank you.

You bet Joanna. So, I want to remind everyone that this is the first time we're giving guidance on the fourth quarter. But that said, I will talk a little bit more about 2022. Its kind of a top of the waves on CapEx non-development. We expect $2000 to $2500 of CapEx net of landlord reimbursements per unit in 2022. As far as the development CapEx, we're still kind of identifying the projects that will go under that project umbrella and again, more to come on that number as we turn the calendar.

All right. Thank you.

Thanks Joanna.

Thank you, Joanna. Our next question is from Frank Morgan from RBC Capital Markets. Frank, your line is now open.

Good morning, Frank.

Good morning. How are you? So my question sticking on the rate increases going forward. I'm curious if any of you all could maybe look back at precedence here in past cycles were you were able to raise rates kind of in the early part of the cycles. What kind of effect that had in terms of its impact on occupancies for in-place, residents. Was there a much of a loss of occupancy when that first occurred or just -- do you have any color on that? I'm trying to remember back when that would have been. I'm thinking back maybe in the early 2000 or very early 2000s. But any reminders would be great?

Yes. Frank, we have always been very successful of passing along rate increases without having a lot of attrition from in-place residents. And I think that has been pretty consistent whether it’s a higher or lower rate increase. Because what we're trying to do we set rate is we're trying to say, what's the fair increase in rate. What's right for the resident. What's right for the business. And because of that approach and because we train our executive directors to have a discussion about the rationale, the kind of rate increase, we generally don't see significant attrition for rate increase.

Got you. And then I guess back on the costs side, obviously we know labor is front and center. But are there any other emerging cost inputs you're seeing, where you seeing a pickup in inflation?

Not kind of across the board, Frank. We over the past couple of years we've seen some insurance pressure. But this year is not going to any different than that. It might a slightly better into 2022, just given the hurricane season. And then, it all boils down to labor.

I hope it should be due to hurricane. It's not quite over yet.

Got you. And then I guess, just trying to get my head around this contract labor issue. In terms of the opportunity of that in your cost structure that comes back down. Is there -- maybe I missed this. But is there any kind of dollar amount or framework that you're saying, you're above what you think you would be at a normal times that we could kind of consider as we sort of thinking forward? Thanks.

I think important thing is that its going to offset -- the reduction contract labor should offset some of the labor pressure that we're seeing from wage growth into 2022. Good question Frank.

Thank you.

Okay. Are there any more questions. I don't think there are. So I want to thank you very much for joining our conference call today and for your interest in Brookdale. I hope that everyone has a wonderful weekend. And we look forward to talking to all soon. That concludes our call.

This concludes today’s conference. And you may now disconnect your lines.