Welcome to the 2024 RBC Capital Markets Global Healthcare Conference. I'm Ben Hendrix, RBC's healthcare services and managed care analyst. We're pleased to host Brookdale Senior Living today, and with us this morning from management are Cindy Baier, President and Chief Executive Officer, and Jessica Hazel, Vice President, Investor Relations. Thank you all for being with us this morning. Ben, thanks so much for having Jessica and I. We're grateful to be here talking about the progress that we're making on our recovery. Yeah, let's get right to it. Brookdale posted a solid start to 2024, beating the high end of your first quarter guidance range as the monthly occupancy came in above expectations. Can you give us a feel for the drivers of growth, and to what extent we are still on kind of the post-pandemic upswing? It's a great question, Ben. We are very proud of the progress that we're having on our recovery. One of our objectives is to get every available room in service at the best profitable rate, and during the first quarter, I'm very pleased with the fact that our occupancy growth accelerated year-over-year, and we had outperformed our sequential first quarter occupancy growth. What we saw was our move-ins were stronger than they were pre-pandemic. We were up 7.5% compared to our pre-pandemic average, and we saw improvement in our move-outs year-over-year. So, we're excited about the progress that we're making. How does that compare, your occupancy trajectory compare to the industry? Kind of, what observations can you make in terms of what you're seeing out there in the market, in your markets, and then just more broadly? Yeah. What I just mentioned is our strategic priority is to get every available room in service at the best profitable rate, and we're really focused on the quality and the profitability of occupancy, not just occupancy for occupancy growth itself. What we're really trying to do is we're trying to grow margin, and we're trying to grow cash flow, and so we really look at both occupancy and rate together. And one of the things that I'm really, really proud of is if you look at the first quarter results, and you annualize our same community results on a per-unit basis, and you look at our operating margin, it's actually better than it was pre-pandemic in 2019, and I don't know many, if any, other large operator who can say that. So I think that our focus on RevPAR is really translating into very positive results. Great, and one consistent theme we've heard through this quarter and also from one of your peers we'll hear from tomorrow is kind of the levers that your local community leaders can pull, and it seems like that is a key piece of the outperformance puzzle. Maybe you can kind of talk about your local leadership strategy and what they're doing to kind of help get all of the beds filled. So one of the things that we know is that when our executive directors are in place, at least for two years, they have better results, and what we think is that it takes a little while for the executive director to build their team, to build the relationships with our residents, the families, and with the associates, and for that to create results that are noticed by the broader business community. So one of the things that we're really happy about this year is that we've seen our executive director retention rate at close to 70%, and that is approaching sort of our pre-pandemic rates. At the same time, we've seen that our hourly associate workforce has become much more stabilized. We're within about 10 percentage points of our pre-pandemic average, and what this does is it allows the communities to function better because everyone knows their jobs. You build the relationship with the residents. They're able to improve resident satisfaction. It increases length of stay. We get more referrals from residents, and so I think that having our executive directors in place longer, having them focus on both mission and margin, is really one of the things that is helping us achieve the recovery. Plus, I would be remiss if I didn't say we've got some powerful industry tailwinds behind us with low supply, increasing demand, and Brookdale has some incredible differentiators, like Brookdale HealthPlus, which are really helping us drive our recovery. But it's really that local leadership focusing on both mission and margin that is really where the credit is due. Maybe that's a good segue into HealthPlus. It's a question we have. Just, just if you could maybe refresh us all on kind of the differentiating factors there, and what's, and, and how it's adding value. Absolutely. Mm-hmm. So I'm really proud to say that Brookdale HealthPlus was recognized by Argentum, which is our industry trade association, as a best of the best, and it's our approach to participating in value-based care. Each resident in a HealthPlus community has access to an RN care coordinator who can help them fill the care gaps. They make sure that they are getting their preventive care appointments, help them manage chronic conditions, coordinates with the resident and their doctors, as well as family members, and what's really particularly exciting about HealthPlus is it has resulted in a 78% reduction in urgent care visits and a 36% reduction in hospitalizations when you compare a Brookdale resident to a resident with a similar population or health profile that lives at home. If you think about it, what would you want for your mom than sort of better, better healthcare? That's really what HealthPlus offers, and what we see is that it attracts more residents to our communities. Our associates who work in HealthPlus communities stay longer, and we're excited that it's gonna increase the length of stay. ... So is the benefit more of a length of stay, or is it baked into the level of care, cost increase in the rent? So there is no incremental cost to a Brookdale resident to be in a Brookdale HealthPlus community. We are very excited that we have a payer who provides a per-member, per-month fee- Mm-hmm ... to Brookdale for our residents who are in their plan, who are also in a HealthPlus community, that largely offsets the cost. Mm-hmm. It's pretty exciting because you get a better value proposition for the resident- Mm ... at no incremental cost. Maybe if we could step back and talk about rate. Obviously, you guys had the January 1 rate increase that goes into effect, 4.4%. Strong rate, still above historical levels, but a pullback from last quarter. Can you just give us some, a little bit of inside baseball on the, the calculus that goes into that, what we're seeing in terms of level of care, and, and just the overall acceptance in, in the communities? So the most important thing that we're trying to do with rate is we're trying to balance affordability for the residents with the cost that it takes to provide quality care. And we're always good stewards of our residents' dollars, because we know that every dollar that we spend at Brookdale, or at least the vast majority of the dollars that we spend at Brookdale, comes from a resident who worked hard for their savings and for their retirement income. So we, we focus very, very carefully on that. Now, in 2024, our rate increase was higher than our historical rate, but it wasn't as aggressive as the rate increase that we took last year. And so what we saw is that that rate increase went about as we expected, which was pretty well. I think it was good for our residents that they had a smaller rate increase than last year, and you can see that it is translating into improvements in financial move-outs as a result of the lower rate. And that's really a good lead-in to kind of what we saw for occupancy in April. Clearly, you know, the lower rate versus last year increase versus last year is helping. You talked about the move-outs, but, you know, we also saw some favorability towards the end of April. So how does this compare to your kind of typical seasonality? Is it on par with the internal expectations, and how do we see that playing out for the back half of the year? Mm-hmm. Yeah, we've been very pleased with our occupancy performance here to date, which has performed that normal seasonality that we would have seen pre-pandemic. And then for the second quarter, we expect an increase sequentially from the first quarter on our weighted average occupancy. And again, this would reflect favorable performance from that normal seasonality, which I would say historically would be a slight step down for the second quarter. Then as you progress into the third quarter, you know, moving throughout the year, that's historically our highest sequential growth period for occupancy, and we would expect the same thing this year as we move through 2024 and enter that busy summer selling season. One of the things I think that's really great, that Dawn shared last week on our earnings call, is that we believe that our year-over-year RevPAR growth rate will improve throughout the year from our second quarter guidance level, and that's from that strength in occupancy that's above the pre-pandemic seasonality. Mm-hmm. Overall, just, I mean, very excited about the year, and we're seeing all of the efforts that we've, you know, put into place, a lot of the initiatives, really just translating into positive outcomes. That occupancy progression, kind of balanced by probably the rents will kind of naturally step down sequentially a little bit in the quarter- That is correct. So it's very normal when you take an annual January 1st rate increase- Mm-hmm ... to see your RevPAR tend to step down slightly each quarter throughout the year. Mm-hmm. Because as higher acuity guests who have been with us a full length of stay- Mm-hmm ... are moving out, you're replacing those guests with a lower acuity guest- Mm-hmm ... just in general. So it would be normal, and that's what we expect in the second quarter. Gotcha. And then you've always maintained very, very strong rate discipline. Can you kind of talk a little bit more? Has anything changed about the local leaders' abilities to fluctuate that rate within guardrails? No. Our executive directors have control over their local community, so they make the pricing decisions, and they make the staffing decisions, and they do that with tools that come from corporate. But they have the ability to respond appropriately to local competition. And I do think that they have the best position to look at what's happening in their local marketplace, what is their competition, what is their occupancy, what does their resident base look like? And so I think they're doing a great job sort of managing the RevPAR growth, because as we started the conversation, at Brookdale, it's really not just about occupancy. We're trying to make sure that we're charging a fair rate for our services, but we're really trying to build margin and cash flow. I think if you look at just the massive improvements that we've made since our recovery continued, they're doing just a wonderful job. Great. Now, I wanna move on to the nursing labor backdrop. You know, obviously, we've had post-pandemic, there's been a significant shortage. It seems like it's getting a little bit better, but can you take us through your management staffing or your staffing management strategy over the past couple years and where we are now in terms of labor cost inflation? ... Yeah, our second priority is to attract, engage, develop, and retain the best people. And one of the things that we really have focused on is attracting more people to Brookdale, rebuilding our workforce from the lows that we had in 2021 past the pandemic, and to really improve retention. But what is good about that is that it allows us to use less contract labor because we're staffing our shifts with Brookdale associates, ideally working a regular shift, although we're using more overtime than we have pre-pandemic. But what we've been focused on is really the culture of the community, making sure that we are providing a workplace that gives people the opportunity to do meaningful work, getting to be part of something that's bigger than themselves, and to be in a workforce that is both welcoming and inclusive. At the same time, we've been focused on giving them more tools, better training, focused on development opportunities and career ladders, so that if somebody joins Brookdale, they can really stay their whole career with us. Because as the largest operator, there is no one in the industry who can give workers a better career path than we can at Brookdale. And so as I mentioned earlier, that's translated into our executive directors being at about a 70% retention rate. We've seen great improvement of the retention rates of our nurses. Our hourly associate turnover has improved significantly from the heights of post-pandemic, and now is within 10 percentage points of where it is. And that allows us to appropriately staff our communities while making sure we're providing quality care, meeting resident needs, and maintaining regulatory compliance. So we're pretty excited with the progress that we've made. We still have a little bit of work to do, but we've made a lot of progress. Great. I wanted to follow up on the results from the quarter. A couple mentions from the call that stood out to me. You've returned to 97% of 2019 adjusted EBITDA, with annualized operating income per unit above 2019 levels. So is this progress pushing the bounds of how should we think about the operating leverage opportunity? Specifically, you've got a great slide in your deck talking about $1 billion potential operating income as we get back to pre-pandemic occupancy of 84.5, and $1.1 billion as we get back to peak of 89. Mm-hmm. Are we bending the curve on that, or? I mean, we definitely believe that we have the ability to continue to grow our margin rate and deliver that level of performance. It's gonna be higher occupancy, appropriate pricing, and ongoing improvements in retention and turnover that will support that future margin growth. Senior living is a very fixed-cost business, so as we continue to grow occupancy and rate, we can improve our leverage of those fixed costs, which will support improved margin and overall operating income growth. Also, when we have improvements in our retention and turnover, our associates just naturally become more productive, which is going to support that continued margin growth, while continuing to deliver high-quality care and personalized services. One of the things that I think is great, as Cindy shared, our first quarter annualized same-community operating income on a per-available unit basis was higher than 2019 for that same community. So we're already back and above that level per available unit. So that provides us a really solid baseline that we can build upon. And as we grow census back to those numbers that you quoted, you know, 89% occupancy and higher, and as we continue to improve our margin rate, there's just meaningful upside for Brookdale and for our stock working towards those numbers. And again, as Cindy shared, just that powerful supply and demand tailwind is going to support that. So it gives us confidence in our ability to really deliver against that meaningful upside that we show in the couple of pages in our investor presentation. Great. And also impacting the stock, I notice that we are kind of... There's been a lot of chatter about interest rates and kind of getting into a little bit of a cooling on the interest rate momentum, broadly. I just wanted to see how interest rates impact your business. I know you've got a lot of lease exposure, which may be more, you know, impacted by escalators rather than rates. But if we can kinda just set our minds at ease about how the interest rate exposure is, you know, set up at Brookdale. It's a really good question. If interest rates come down, it will definitely benefit Brookdale, and it will improve our cash flow. So just a little bit of history. As you're right, our leases do have escalators in them, but we have our debt, about 60% of it is fixed cost, or fixed rate. But when you look at our variable interest, we basically had a $50 million roughly or $50 million expense increase between 2022 and 2023 as a result of interest rate increases. So when you compare that to our cash flow losses, if we had $50 million less of interest expense, it would make a meaningful difference on our cash flow. Now, the other thing that we look at is the impact that interest rates have on our residents. And our residents do have fixed income portfolios, so as they have a higher interest rate, they've got more discretionary income. But even if interest rates come down, we think that will bode very well for our residents because they still have their retirement income if they want to fund part of their senior living stay with home equity. 80% of seniors who are 75 and older own their own home, and since 2000, their homes have appreciated roughly three times. At the same time, they've seen a lot of growth in their investment portfolios. So net net, we'll be a beneficiary of lower interest rates, but there are some puts and takes to it. Got you. And then staying on the balance sheet discussion, can you talk about your approach to owned versus leased real estate, how you're thinking about the future, and kind of where a good run rate structure would be for Brookdale? Yeah. Over the last several years, Brookdale has consciously shifted the concentration of the portfolio into more owned assets. Mm-hmm. At the end of 2017, about 49% of the units were owned, and at the end of 2023, it's about 61%, so a meaningful difference in that portfolio. We believe that those owned communities really give us the opportunity to fully capitalize on this senior housing recovery that we've seen, as well as just, again, the tailwind that we are expecting from the growing demand and limited supply. Whereas leases historically have allowed a company to grow their portfolio without having to invest that upfront equity in the properties. I mean, very excited that we've been able to grow to, you know, more than 61% of our consolidated portfolio units being owned. I would say that over the longer term, we would expect to maintain a higher percentage of owned communities, because it's, we believe, not only beneficial to Brookdale, but also to the shareholders in the long run. ... Mm-hmm. Great, and I know this is a topic we've talked about before, but wanted to recap, so we still get questions on it. We get a number of questions on the positioning ahead of the Ventas lease expiry. And you have voiced confidence that Brookdale, their shareholders will fare well in any outcome, whether you renew or let the lease expire. Can you give us more insight into how you're thinking about the master lease? Absolutely. Our Ventas lease expires at the end of next year, and I think that lease expirations are good for Brookdale because they provide us with optionality. If the portfolio is performing, we have the option to renew the lease. If it's not performing, we have the opportunity to walk away and improve our cash flow as a result. Now, I'm very pleased, as we've talked about earlier today, with the progress that we've made on our recovery. We've had a strong recovery since the pandemic. That includes our owned assets, but also our leased assets. But if you look at our perspective on leases, we focus on cash flow, and it's cash flow after G&A cost, after CapEx, and we've spent about $3,000 a year on our CapEx for our leased portfolio, and after an appropriate capital return. So that's how we analyze it. And if you look at our supplement, page 5, you'll see that our leased portfolio lost $9 million in the first quarter. So if you annualize that, that's about a $36 million annual loss on our lease portfolio, compared to $9 million for the quarter of Adjusted Free Cash Flow for our owned assets. And so we're really gonna look at it from that perspective. We'll also look at the quality of the assets. We'll look at the terms of the lease in terms of the length of the lease, the escalators that are in it, the current and projected cash flows for the assets, any reporting requirements, covenants, contractual requirements, and we'll take all that into consideration to figure out what is best for Brookdale shareholders. But the one thing that I know for sure is no matter what we do with that lease, we will have the opportunity to get the best result for Brookdale, and it's big because it's more than 40% of our leased portfolio. I believe that Ventas disclosed last year between 3Q and or 2Q and 3Q, that the lease coverage ratio had increased in that, you know, in within that master lease. And is that still the trend that you saw through- We- the year end? We have absolutely had a powerful recovery- Mm ... with our, with our whole portfolio, both owned and leased. As I mentioned, what's gonna be important to us is what is the Adjusted Free Cash Flow- Mm ... after G&A, after CapEx, and after an appropriate return that compensates us for the risk that we would take. Great. Is anything else that we should know about in the last couple of minutes? Well, I just wanna step back and say this is a really exciting time to be looking at Brookdale. I think that if you look at sort of the recovery that we've had from the pandemic, we've done just an amazing job sort of being able to get our units at a higher profitability than we had sort of pre-pandemic. But there's still so much opportunity from the growth that we have to the 84.5% occupancy that we had just prior to the pandemic, or to the 89.5% that was pre-pandemic, our historical high. And so you should have the confidence that we're making the right decisions to position the business for future success. And yet there's all this upside from the powerful supply and demand demographics that we're faced, plus the Brookdale differentiators. I think it's just an exciting time to be at Brookdale. Great. Well, thank you very much for being with us. Ben, thanks so much for having us.