Hello, all, and welcome to the Brookdale Senior Living 1Q 2024 Earnings Call. My name is Harry, and I'll be your operator today. [Operator Instructions] I'd now hand the call over to Jessica Hazel, Vice President of Investor Relations, to begin. Please go ahead.

Thank you, and good morning. I'd like to welcome you to the First Quarter 2024 Earnings Call for Brookdale Senior Living. Joining us today are Cindy Baier, our President and Chief Executive Officer; and Dawn Kussow, 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 and 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 of the full safe harbor statement. Also, please note that during this call, we'll present non-GAAP financial measures. For reconciliations of each non-GAAP measure from the most comparable GAAP measure, I direct you to the release and supplemental information, which may be found at brookdaleinvestors.com and was furnished on an 8-K yesterday. Now I'll turn the call over to Cindy.

Thank you, Jessica. Good morning to all of our shareholders, analysts and other call participants. Welcome to our first quarter 2024 earnings call. In the first quarter, we made great progress on our key strategic priorities, which are designed to not only pave the way for operational excellence and sustainable long-term growth, but also to support the health and well-being of our residents and associates. At Brookdale, our unwavering commitment is and has been the health and well-being of our residents and associates. We know that aging presents new challenges for seniors and they, along with their families, often struggle with their evolving needs. Many times, these needs include a significant increase in chronic conditions, increased healings of loneliness and isolation and support to complete even the most basic activities of daily living. At Brookdale, we take pride in our ability to help seniors manage these challenges of aging through high-quality care and personalized services, all in a home-like setting, surrounded by a community of friends. But our commitment doesn't stop with our residents. Our business depends on people taking care of people, and as such, our greatest asset is our associates. Each Brookdale associate has the meaningful privilege to truly enrich our residents' lives with compassion, respect, excellence and integrity. Our mission embodies Brookdale's commitment to a culture of caring and excellence. Through our key strategic priorities and our relentless dedication to the health and well-being of our residents and associates, we're seeing meaningful positive outcomes being realized for our residents and associates in our community operations and throughout our financial results. I'll share with you many of these positive first quarter outcomes, including an accelerating year-over-year occupancy growth trend, another year of favorable rate growth that is supporting profitable census increases and our continued triple-digit same-community margin expansion.…

Thank you, Cindy. Good morning, and thank you for being here today. Cindy shared highlights of our positive first quarter operational and financial progress. I'll provide additional color on our first quarter results, and then I'll speak to our second quarter guidance. Beginning with first quarter revenue. Resident fee revenue grew 4.3% over the prior year first quarter. At the top end of our previously provided first quarter guidance range, consolidated RevPAR grew 6.7% over the prior year first quarter, which was attributable to a 160 basis point increase in weighted average occupancy and a 4.4% RevPOR growth. Marking our tenth consecutive quarter of year-over-year occupancy growth, the first quarter's 160 basis point increase reflects a positive acceleration of our recent occupancy growth trends. We're also pleased to report that the sequential occupancy change from the fourth quarter of 2023 to the first quarter of 2024 was meaningfully better than normal pre-pandemic seasonality for this period. Specific to first quarter RevPOR, as a reminder, while higher than historic norms, we implemented a lower average January 1 rate increase than in the prior year. We remain focused on ensuring appropriate pricing to match the services we deliver in our communities while remaining affordable to our residents and appropriately addressing our costs. As reflected in our results, this year's January 1 increase effectively supported continued RevPOR growth, improved year-over-year financial move-outs and strong flow-through, as evidenced by our margin growth. Specific to our same community portfolio, first quarter RevPAR increased 6.3% over the prior year, driven by 150 basis points of occupancy growth and a 4.3% increase in RevPOR. We're pleased with our continued top line progress, including first quarter occupancy that was better than normal seasonality, strong demand and year-over-year improvement in controllable attrition. Moving to first quarter expenses. Consolidated facility…

I'd like to close by saying thank you. Thank you to our residents and their families for entrusting us with their care and allowing us the privilege to serve them, to our 36,000 associates for their dedication and commitment to enriching the lives of those we serve, to our shareholders for their continued support in advancing our mission. And lastly, a special thank you to Guy Sansone and Marc Bromley for their years of service to Brookdale's Board of Directors as they notified us that they will not be standing for reelection and will be retiring from our Board at our 2024 Annual Meeting. Guy and Marc have played an important role at Brookdale, and we're grateful for their contributions. Operator, please open the line for questions.

[Operator Instructions] And our first question today is from the line of Ben Hendrix of RBC.

Great. And congratulations on the quarter. Just wanted to get some more details on the factors that give you confidence in outperforming the seasonal occupancy trends for the remainder of the year. Is that largely driven by staff retention efforts and advances you've made there? Or are there other market dynamics? And then just related to that, clearly, strong performance in controllable move-outs this quarter. Is the overall move-out rate kind of where it needs to be at this point? Or how much room to run do we have there?

Ben, thanks so much for the question. This is Cindy. I'll start with a response to the controllable move-out rates, and then Dawn can jump in. I'm really proud of the progress that we made this quarter, and quite honestly, since our recovery began in March of 2021. We'd still like to see improvement in both controllable and noncontrollable move-outs relative to pre-pandemic. I think it makes sense to say that we're making progress, and we're focused on improving resident satisfaction, and that is one of the ways that we think that our results will improve. It's also important to note that this year's rate increase was more aggressive than historical norms, but less aggressive than last year, and I think that played a critical role in helping us with controllable move-outs. Now Dawn, if you want to address the rest of the question?

Yes, Ben. Thinking about our overperformance in the fourth quarter to first quarter, where we had the 50 basis point decline in our occupancy. As Cindy mentioned in her prepared remarks, our move-ins were 7.5% better than our pre-pandemic move-ins. So we were very happy with that -- with the strong move-ins. On a move-out perspective, I think we saw less on the financial move-out compared to the prior year. And so we continue to see that supply and demand, coupled with the fact that the rate was -- that rate increase was lower than the prior year. Additionally, Cindy talked about in her prepared remarks our retention and turnover progress, and we think that, that is playing into that favorability, and we'd expect to continue -- that to continue throughout the year.

Our next question today is from the line of Joanna Gajuk of Bank of America.

So I guess staying on occupancy for a second. So you mentioned you expect this positive, I guess, experience from Q1 to continue in Q2, and you talk about you expect the growth sequentially. Because when I look at historical data in 2018, 2019, actual occupancy was down quarter-over-quarter, I guess, because of the new supply pressure there. But last year, right, Q2 versus Q1 was up 20 basis points. So is that -- is this what you're referring to? Kind of is that the magnitude we should be thinking about in terms of the growth of Q2 versus Q1 occupancy?

I think, Joanna, how you've to think about it is we -- it would generally be similar in trend as prior year, maybe not similar in percent. If you think about what has happened Q2 into Q1 of '22 into '23, we're relatively flat coming because we were recovering from the pandemic. We're seeing that favorability. So not coming down from Q4 into Q1 of this year. We're making that turn, if you'll, sooner. So that's evidenced by the April occupancy that we just published last night, where our average occupancy was consistent with March. And then you can see our ending occupancy was up 10 basis points over March. So we'd expect to make that turn sooner. We're making that turn sooner, and we'd expect that you'll see that in our Q2 occupancy.

Right. That makes sense. And to that and when it comes to the occupancy, continued to surprise to the upside, right, like improvement is happening at a faster rate in those quarters. So I guess, as it relates to the prior question, but can you give us your views of like the main drivers? I understand you've obviously been working hard on this, not just this last quarter, but for the last couple of years. But any specific examples you can point to in terms of what's happening? Obviously, the new supply not being there is helping, but any other industry level drivers versus the company specific and to that? And in your slides, right, you've this mention of targeting -- coming back to 2019, and I guess you added -- thinking about kind of returning to not really the '19, because that was again impacted by the robust new construction happening across the industry, but really to the prior peak, so I guess it was 2014 or '15. So any updated views in terms of how long it's going to take you to either get to the 84%, call it or higher occupancy?

Yes, Joanna, let me start, and then Dawn can jump in if she has something to add. First, our goal really is to get back to our 2019 profitability. And as I mentioned, we were incredibly proud of the fact that this quarter, if you annualize our first quarter results, we're back to 97% of pre-pandemic. And if you look at our same community adjusted operating income on a per unit basis, then you annualize the first quarter results, we're actually better than 2019. And so unlike many in the industry, we really focused on recovering the cash flow of our business. And so we focused very hard on what was the rate that we were charging for the services. And what were the costs that went into making a resident experience differentiated from our competition, and I think that has boded well. What I can tell you that as a team, there really are those 3 priorities that are really going to drive our recovery, right? We've to make sure that everyone in the company is focused on getting every unit available in service at the best profitable rate as quickly as we can. That's going to be easier in some markets than others, but everybody is focused on that. And last year, we enhanced the Executive Director job description to make sure that they were focused on driving sales in addition to providing good quality care to our existing residents and focus on their satisfaction. The second thing that we've made just great progress on is retaining our associates. Now, we know that when an Executive Director has been in place at least 2 years, that community has better profitability. And we also know that we've got stability in our leadership team that translates into stability of the…

And Joanna, this is Dawn. What I'd.....

Go ahead.

What I'd point back to as well, just adding on to what Cindy said, is Slide 24 and 25 in our Investor presentation, where we laid out our pre-pandemic operating margins. We're nearing, as Cindy had said in our prepared remarks, we're over our 2019 on a per unit basis operating margin. But you can see how close we're to those pre-pandemic operating margins and then just the runway that we've from an occupancy standpoint and how excited we're about that.

Yes, exactly. That's what I was referring to. And since Cindy, you mentioned HealthPlus program line, and it was on my list too in terms of the roll-up. So I don't remember -- have you guys talked about like how many communities, I guess, currently have it in place? And I guess what are the plans in terms of the rollout, like how aggressive you're in terms of sort of planting those seeds in -- across the portfolio?

Sure, today, Brookdale HealthPlus is in close to 50 communities, and our goal is to have it in 130 communities by year-end. One of the things that we think about with regard to the rollout is we're scaling a clinical program that involves changing every single aspect of community operations. So we want to move quickly, but we also want to move carefully to make sure that we're able to appropriately source RN Care Managers, who can help us with that, that we're able to train our people so that the HealthPlus communities operate effectively. And we're excited about the fact that by year-end, we'll be at 130 communities. And again, I couldn't be more excited about the fact that our industry trade association, Argentum, recognized Brookdale HealthPlus as one of the Best of the Best programs. And that just is a testament to how far we're ahead of the industry in this area.

[Operator Instructions] And our next question today is from the line of Josh Raskin of Nephron Research.

Maybe just taking a step back, if you could speak about your development plans, I guess, both sort of short or intermediate term and then the long term. And I'm specifically interested in how you're thinking about changing populations and state demographics and things like that. I'm curious also, as we've seen a big ramp in home-based health care services, are you seeing any impact from that on demand or individuals able to live at home longer in specific areas?

Good question, Josh. We currently don't have a lot of development plans at Brookdale. We're very focused on winning the recovery with our existing portfolio. As we think about what the right answer is, we're very focused on serving residents in their homes, which are our communities. And we think that Brookdale HealthPlus and adding health care into our communities is the right answer. One of the things that you may or may not know is that we've physicians and nurse practitioners, who are around in many of our communities. And so our residents are able to get health care services right at home. We're continuing to look to see what additional health care services could be provided by third parties in our communities. I think you probably know that historically, we've had home health and hospice within our communities. We're continuously focusing on the quality of the programs within our communities, whether that is quality dining and nutrition, whether that is our resident social engagement, whether that's the whole life setting without the burdens of homeownership, but most particularly health and wellness. And what you'll see over the longer term, though, is we'll look to increase the density in the markets, where we think there's growth and where we've got a strong presence.

Yes, I'm sorry. I've misspoken the word development. I meant more of a... go ahead, sorry.

I was going to say the last part of questions was on the home base, we've not seen an impact of home-based services at this point in time. And the age of our residents over the last few years hasn't really changed in terms of the age that they're moving in at. In fact, what we've actually seen is a lower acuity resident is moving into Brookdale, and that is even compared to pre-pandemic.

Got you. Got you. I was going to say, I sort of misspoken. I shouldn't have used the word development. I meant more around sort of like your development CapEx at the local level, like sort of developing more memory care. Is that more targeted? Or is there sort of a general thought on that? I know those numbers have been relatively low in recent years.

We aren't currently doing much in terms of devel on capital in terms of changing the configuration of the community from assisted living to memory care. We're very pleased with the mix that we've. We're much higher assisted living and memory care than the industry and lower in terms of SNF at 1%, 2% of our portfolio. So we're pretty pleased with the position of our portfolio and we're really looking forward to improving the execution and capturing the opportunities in front of us.

Got you. And then you sort of touched on this, Cindy, but I understand Brookdale HealthPlus is an explicit upcharge to residents that's more kind of built into the rents. But is there a thought of getting back into health services and actually charging for specific services? I know you sold the home base -- you sold the JV to HCA. But I'm just curious if there's an appetite to sort of get back into other value-added services?

It's a good question, Josh. And I'm very proud of the transaction that we had with HCA. I think we've got a very good exit from that service line. I think we're more interested in this point of making sure that our residents have access to the services within our communities and less with the -- adding a new business line. If you look at just the Investor presentation and the opportunity that's in front of us, there is so much opportunity from getting back to our pre-pandemic and our historical high occupancy and margins. That's where we're focused. And I think that's the right answer for us today.

With no further questions in the queue at this time, this will conclude the Brookdale Senior Living 1Q 2024 Earnings Call. Thank you to everyone who has joined us today. You may now disconnect your lines.