Brookdale Senior Living Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
February 21, 2024

There are 8 speakers on the call.

Operator

Good morning, all, and welcome to the Brookdale 4th Quarter 2023 Earnings Call. All lines have been placed on mute during the presentation portion of the call with an opportunity for question and answer at the end. I would now like to turn this conference call over to our host from Brookdale's Investor Relations team, Jessica Hazel.

Speaker 1

Thank you, and good morning. I'd like to welcome you to the Q4 2023 earnings call for Brookdale Senior Living. Joining us today are Cindy Beyer, our President and Chief Executive Officer and Don Cusseau, 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.

Speaker 1

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 ks 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 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 ks yesterday.

Speaker 1

Now I will turn the call over to Cindy.

Speaker 2

Thank you, Jessica. Good morning to all of our shareholders, analysts and other call participants. Welcome to our Q4 and 2023 year end earnings call. We started 2023 with a clear vision, an intense focus and a commitment to deliver positive results. This commitment extended beyond achieving positive operational and financial outcomes, it also encompassed fulfilling our overarching priority, which is the health and well-being of our residents and associates.

Speaker 2

We dedicated ourselves to ensuring that we had created the right plans and initiatives for the year, had clearly communicated why these were the most important priorities and had the right people in place to effectively meet our objectives. But our efforts didn't stop with our plans. Our leaders focused intensely on achieving our objectives, worked together as a team and adjusted our tactics as new information became available. For this, I'm extremely grateful to our team for their leadership and their efforts, and I'm proud to say that the result was an incredibly strong year marked by more residents who chose to be part of a Brookdale community, which led to greater occupancy, significant improvements in our operations and robust financial growth. Although complete recovery is still ahead of us, with each quarter of 2023, we continue to build a solid foundation that paves the way for sustained growth.

Speaker 2

For the Q4, we are pleased to report another quarter in which both RevPAR and adjusted EBITDA achieved or exceeded our previously provided guidance. Additionally, by remaining focused on our key strategic priorities, we delivered a number of positive outcomes throughout our community operations, our real estate portfolio and our financials. Same community RevPAR increased approximately 10% over last year's Q4 on positive occupancy and RevPOR growth. By pursuing RevPAR through a balance of occupancy and rate, we delivered favorable top line results. In the Q4, we maintained the positive margin improvement we have achieved throughout 2023, while ensuring that we continue to meet our residents' needs, provide high quality care and personalized service and remain in compliance with applicable regulations.

Speaker 2

Through RevPAR growth and appropriate expense management, same community adjusted operating income grew 37% over the prior year Q4. In addition to these financial accomplishments, we once again achieved meaningful progress towards our leadership retention and associate turnover goals. This is critically important because our business is all about people serving people. Year over year retention rates for our key 3 community leadership roles increased 190 basis points and full time hourly associate turnover improved by 9 10 basis points from the prior year Q4. I am incredibly proud of the progress we are making in this critical area of the business.

Speaker 2

Lastly, as reported in December, we completed 2 financing transactions and sold our remaining equity interest in our home health and hospice venture. Dawn will share the specifics, but I want to recognize our Brookdale team for the successful completion of these transactions, particularly our Treasurer, George Hicks, and to share my gratitude toward each of the counterparties. As we close out 2023, I would like to highlight some notable accomplishments that significantly contributed to our remarkable results. This year was pivotal in refining our operations to favorably impact our performance as we further recover from the pandemic, while continuing to support consistent and high quality resident experiences. We began the year with a strategic rebuild of our senior leadership team.

Speaker 2

These changes, while incredibly difficult, were central for matching our organizational structure with our business priorities and streamlining decision making. We then evolved the Executive Director role to emphasize a stronger growth mindset, combining both mission and margin and underscoring strong business acumen for the incumbents and future community leaders, all the while maintaining our focus on driving resident satisfaction and providing high quality care and services. This led to some turnover in 2023, but it was a necessary step to foster a culture of excellence and continue effectively delivering our mission. And by year end, these changes had started yielding noticeable positive improvements at the community level. We further supported a growth mindset by introducing new training for our community and field leaders to provide alignment across our core priorities and support operational excellence that would enhance not only the business, but importantly, our overall resident and family satisfaction.

Speaker 2

To attract, engage, develop and retain the best associates, we piloted and launched several new processes and programs that resulted in outcomes like the improved retention and turnover that I spoke to. By hiring associates who are dedicated to our mission, extending the length of employment of our Brookdale community leaders and hourly associates and increasing the number of shifts staffed with full and part time Brookdale associates rather than contract labor, we are building stronger teams that will have a favorable impact for years to come. I am so pleased with the community level successes we have already seen from these improvements. We remain committed to continuous improvement and are confident in our plans for further progress. Our annual resident and family survey, which we completed in the 4th quarter and which received roughly 45,000 responses, once again provided invaluable insights.

Speaker 2

Resident and family satisfaction has consistently been a key priority at Brookdale. This priority became even more critical in 2020 3 given the rate increase we implemented at the beginning of the year. I'm proud to report that our total company engagement score improved by a significant amount with positive increases across all of our product lines. Additionally, we are grateful that the vast majority of our residents responded overwhelmingly that they would recommend or highly recommend their community to friends and family. These positive results reflect the great work of our dedicated associates and we will build upon this to ultimately achieve our desired overall satisfaction goals for Brookdale residents and their families.

Speaker 2

We are always extremely appreciative of the meaningful insights received from regular resident and family engagement and we'll continue to focus on this critical area. Another accomplishment in 2023 was the expansion of the Brookdale Health Plus program, which has demonstrated remarkable success in improving resident health outcomes through its innovative care delivery model. Independent evaluations confirmed that residents in our Health Plus communities experienced fewer urgent care visits and hospitalizations, underscoring the effectiveness of our proactive and preventive care measures. Planning for our next Brookdale Health Plus expansion is well underway and we expect to have nearly 130 communities in this industry leading clinical program by the end of 2024. The continued expansion of Brookdale Health Plus not only creates an integrated benefit for our residents, but also it creates value for many stakeholders and further establishes Brookdale's position as a market leader and industry innovator.

Speaker 2

Also in 2023, we continue to proactively manage our leased and owned portfolios to further improve our long term financial position. This included negotiating favorable terms with 2 long standing landlords as well as making strategic decisions about our portfolio such as disposing of certain leased and owned properties that were no longer right for Brookdale. Through these transactions, we not only obtained additional landlord funded CapEx, but also secured favorable purchase options on certain communities that were previously not available to us. This will support future cash flows and enable us to further improve our owned to lease portfolio mix in the years to come. Lastly, as a result of our strong 2023 adjusted EBITDA growth, our annualized leverage decreased from 19.8 times at the end of 2022 to 11.1 times at the end of 2023.

Speaker 2

Throughout the pandemic and subsequent recovery period, we have successfully executed plans to manage our capital structure and maintain appropriate liquidity. Our 4th quarter transactions are the most recent examples of this. Combining a passion for successfully executing our mission, while focusing on delivering an appropriate margin is critical for our success. While our overarching priority remains health and well-being of our residents and associates, cash flow and liquidity will continue to be our top financial priorities. In summary, 2023 was a year of strong and steadfast execution of our strategic goals, solid operational improvements and meaningful growth towards full recovery.

Speaker 2

In a moment, Dawn will share with you the measurable results of these efforts, which are significant, while I'll now turn to our 2024 plans. As we look to 2024, our expectations are simple. Stay the course. We have worked incredibly hard to lay a strong foundation for future growth and we intend to build upon the successful execution of our strategy. Our commitment is to continue to provide growth opportunities and rewards to our people, while reinforcing the favorable initiatives and processes that we introduced in 2023.

Speaker 2

Brookdale remains a learning organization. Accordingly, we'll take our learnings from 2023 and we will address and improve areas that require ongoing refinement in our continuous pursuit to be the nation's first choice in senior living. We made remarkable progress last year, but driving meaningful change through an organization and reaping the full benefit of that change takes time. We take pride in our accomplishments and we also see them as stepping stones towards our full recovery and achieving our ultimate potential. As such, our teams throughout the organization are incredibly committed to executing against our key strategic priorities that guided our success and growth in 2023.

Speaker 2

These key strategic priorities for 2024 will remain: 1st, get every available room in service at the best profitable rate 2nd, attract, engage, develop and retain the best associates and 3rd, earn resident and family trust and satisfaction by providing valued, high quality care and personalized service. Through consistent execution of these, I believe we will grow occupancy and RevPAR, deliver meaningful 2024 adjusted EBITDA growth and adjusted free cash flow improvement and support further shareholder value creation, all while continuing to grow resident satisfaction. I look forward to providing you with positive quarterly updates on our progress throughout 2024. I'll now turn the call over to Dawn.

Speaker 3

Thank you, Cindy. Good morning and thank you for being here today. We were very pleased to finish 2023 with another quarter of solid operating results and financial growth. Beginning with 4th quarter revenue, residency revenue grew 8.9% over the prior year quarter. 4th quarter consolidated RevPAR growth was 10% over the prior year, which is in line with the top of our previously provided guidance range.

Speaker 3

Our year over year RevPAR growth was attributable to 130 basis point increase in weighted average occupancy and an 8.1% RevPOR increase. This marked our 9th consecutive quarter of year over year occupancy growth. Sequentially, these results represented an 80 basis point increase in occupancy and 0.5% decrease in RevPOR compared to the 3rd quarter. We are pleased to report that this sequential occupancy growth was meaningfully above normal pre pandemic seasonality for this period. 4th quarter RevPOR was slightly below our expectations due to resident mix, disposition timing and our competitive response on pricing.

Speaker 3

Our same community portfolio performed largely in line with the consolidated portfolio in the 4th quarter, including RevPAR growth of approximately 10%, a 130 basis point increase in weighted average occupancy and approximately 8% RevPOR growth over the prior year. We are pleased with these top line results. Moving to 4th quarter expenses. Consolidated facility operating expense was $530,000,000 while Same Community Facility operating expense, as shown on Page 8 of our financial supplement, was $513,000,000 4th quarter same community adjusted operating income grew by 37% over the prior year 4th quarter, significantly outpacing our peers. This was our 9th consecutive quarter to deliver year over year adjusted operating income growth.

Speaker 3

We are very proud of this progress as we diligently work to return to pre pandemic segment operating margins, while continuing to ensure that we meet our residents' needs, provide high quality care and service and remain in compliance with applicable regulations. Same Community 4th quarter adjusted operating margin was 26.3%, which represented the highest reported margin rate since the initial impact of the pandemic. This solid progress is a result of favorable outcomes from the 2023 accomplishments Cindy spoke to, including continued RevPAR growth and appropriate expense management. 4th quarter general and administrative expense was approximately $1,000,000 lower than the 3rd quarter. Cash operating lease payments were $65,000,000 which is in line with our previously provided expectations.

Speaker 3

4th quarter adjusted EBITDA was $85,000,000 and exceeded the top end of our guidance range by approximately $3,000,000 This positive result was due to a combination of strong flow through of 4th quarter revenue and modest favorability in G and A. Compared to the prior year 4th quarter, adjusted EBITDA grew 83%. This remarkable growth was despite the $13,000,000 quarterly impact of the changes in lease classification and the $5,000,000 in government grants and credits recognized in the Q4 of 2022 versus no grant income in the Q4 of 2023. Adjusted free cash flow was negative $21,000,000 for the quarter. Normal seasonal working capital, specifically annual real estate tax payments, was the primary driver of the variance to the 3rd quarter.

Speaker 3

4th quarter non development capital expenditures net of insurance proceeds were $36,000,000 For the full 2023 year, we incurred approximately $26,000,000 in reimbursable remediation costs and received approximately $24,000,000 of insurance reimbursement related to the 2022 natural disasters. As of December 31, total liquidity was $341,000,000 The primary driver of the $65,000,000 sequential decrease in quarter end liquidity was related to the refinancing transaction we reported in a press release on December 27. In the December press release, we announced 4 completed or pending capital markets transactions. I'll speak

Speaker 2

to each of them briefly.

Speaker 3

First, we obtained a $180,000,000 agency loan under an existing master credit facility agreement with Fannie Mae. The loan is secured by non recourse first mortgages on 47 communities that also secure another larger tranche of debt with a later maturity. The loan has a fixed interest rate of 5.97% and a borrow provision which allows for potential additional proceeds in 2024 as communities in the loan continue to recover. We used proceeds from the $180,000,000 loan coupled with cash on hand to repay a $260,000,000 loan, which was set to mature under the credit facility in September 2024. With this transaction, we cleared our maturity runway for the next 18 months and rightsized the latter tranche of the existing loan.

Speaker 3

We were very grateful for Fannie Mae's partnership in this transaction. In the second transaction, we amended our existing revolving credit agreement, which increased the commitment by up to $20,000,000 and extended the agreement to January 2027 with additional extension options thereafter. 3rd, we sold the remaining 20% equity interest in our home health and hospice unconsolidated venture for aggregate proceeds of $27,000,000 And 4th, as part of the press release, we noted plans for a new financing transaction. Earlier this month, we completed a new financing transaction to obtain $50,000,000 of bank debt, which matures in February 2027 with 2 1 year extension options. This property level mortgage financing is on 11 previously unencumbered communities and carries a variable interest rate of 3.50 basis points over SOFR.

Speaker 3

We are very pleased with the outcome of each of these transactions and believe they are examples of our continued proactive management of liquidity and our capital structure. Our next debt maturity without extension options is September 2025. Cindy walked you through some of our 2023 accomplishments. Thanks to the hard work of our approximately 36,000 associates, we have delivered measurable positive results in 2023. I'll share a few of the highlights.

Speaker 3

As of 2023 year end, weighted average occupancy has grown a total of nearly 900 basis points from the start of the pandemic recovery. Full year same community RevPAR grew 11.4%, which significantly outpaced our peers. Same community adjusted operating income, which excludes government grants, grew 43% over the prior year, supporting a 580 basis point improvement in adjusted operating margin. On a per available unit basis, our same community adjusted operating income has reached 92% of the 2019 same community adjusted operating income we reported. Given the significant runway still available to grow occupancy, we believe this reflects a very strong recovery.

Speaker 3

Lastly, adjusted EBITDA grew 39% over the prior year, while adjusted free cash flow improved 76%. This was despite $71,000,000 of higher grant income in the prior year and the $41,000,000 impact of the two changes in lease classification. I am proud of these results and deeply appreciative of our team's efforts that went into achieving them. Turning to our Q1 expectations. In yesterday's press release, we guided to 1st quarter RevPAR growth of 6.25% to 6.75% over the prior year and adjusted EBITDA in the range of $90,000,000 to $95,000,000 There are a few considerations I'd like to provide specific to these guidance ranges.

Speaker 3

Regarding RevPAR, we anticipate 1st quarter weighted average occupancy will reflect a normal seasonal trend for this period. As a reminder, pre pandemic, the Q1 generally declined sequentially compared to the Q4. We saw this normal seasonality return in the prior year Q1 and have built this expectation into our guidance. January weighted average occupancy was 78%, a 140 basis point increase over the prior year January. Additionally, we implemented a lower January 1 in place resident rate increase than in the prior year, but higher than historic norms.

Speaker 3

We remain focused on ensuring appropriate pricing to match the services we deliver in our communities and believe our annual pricing increase appropriately addresses our expected labor costs, which is the most significant portion of community operating expense as well as normal inflationary increases on food, supplies and utilities in addition to interest rates, which remain elevated. Regarding our adjusted EBITDA guidance, while it has been more normal course for me to note sequential variations in expectations, For this particular quarter, I believe noting a few considerations compared to the prior year Q1 would be more helpful. First, there will be an incremental day this year, specifically LEAP Day, which results in higher expense with only a minor impact on revenue. 2nd, given the timing of a 2023 change in lease classification through the Q2 of 2024, there will continue to be a year over year impact to adjusted EBITDA. Specific to the Q1, this is a $7,400,000 year over year impact.

Speaker 3

As a reminder, this lease accounting change decreased adjusted EBITDA, but has no impact on adjusted EBITDAR, a standard and widely used non GAAP valuation metric and no impact to adjusted free cash flow. 3rd, in the prior year Q1, we recognized $2,000,000 in grant income and our guidance does not assume any grant income in the Q1 of 2024. Lastly, while we are still fully assessing the total cost of needed maintenance and repairs, we currently estimate the expense impact from the 2 January winter storms to be approximately $2,000,000 This estimate is reflected in our adjusted EBITDA guidance range. I am very proud of the progress our team has made in 2023, and I am looking forward to our continued success in 2024. I'll now turn the call back

Speaker 2

over to Cindy. Today, standing on the other side of this remarkable year, I am not just proud of what we've accomplished, but also more determined than ever to continue on our path of sustainable growth for the benefit of our residents, associates and shareholders. The future holds even greater opportunities and we are fully committed to seizing them and building a stronger Brookdale so that we may serve the needs of more seniors for years to come. I'll close by saying thank you. Thank you to our residents who call Brookdale home, to our associates who are dedicated to the health and well-being of our residents, and to our shareholders for their continued partnership, trust and support.

Speaker 2

Operator, please open the line for questions.

Operator

Thank you. So our first question comes from the line of Ben Hendricks of RBC Capital Markets. Your line is now open. Please go ahead.

Speaker 4

Great. Thank you. Good morning. I wanted to drill into your Q1 guidance comments a little bit more. The RevPAR range certainly appears consistent with historical seasonal occupancy trends that we saw pre pandemic.

Speaker 4

We're thinking a step down in the 80 basis points range give or take. That said, the December and January occupancy held up a little bit better than last year, certainly so on a month end basis. I just wanted to see if there could be some conservatism in there given the occupancy momentum that Don called out through the second half of twenty twenty three and what you've seen into January. And then, more broadly, just any updated views on the path back to that pre pandemic 4Q 2019 level occupancy, that we're targeting? Thank you.

Speaker 3

Yes. Good morning, Ben. This is Dawn. Thanks for the question. How we're thinking about it is, yes, we did see January is continuing to follow that historical pre pandemic trend for the full Q1.

Speaker 3

And as far as full year occupancy, what I would say is, we are continuing this year, as Cindy mentioned in her prepared remarks, to focus on getting every room in service at the most

Speaker 5

24. And if I go to the longer term, Ben, this is Cindy. I would just say that we were really, really pleased to finish 2020 3 with another quarter of incredibly solid operating results and financial growth. And we believe that we have built a very solid foundation that it paves the way for sustained growth. And so we're looking forward to welcoming new residents into our communities, extending the length of service for our associates and focusing on providing quality services, which will help us achieve our long term objectives as quickly as possible.

Speaker 4

Thank you. If I could just add on a quick one, our periodic labor tracker suggest a pickup in job postings late in the year, which is consistent with your strong occupancy. I wanted to get your thoughts on just the full time labor cost expectations that you're thinking about in guidance and through the rest of the year and if there could be some added on boarding costs in the Q1? Thanks.

Speaker 3

Yes, I'll start. And I think then how we're thinking about our labor costs is we've gotten so much of our contract labor out in 2020 3 that the premium labor savings in 2024 would be something less than in 2023. However, what we would expect is we will, the productivity of our labor will naturally get better as we increase our occupancy. And Cindy mentioned in her prepared remarks about the focus on training and our focus on retention and turnover. And as we see that improve, we would expect to have increased productivity there as well.

Speaker 5

And the one thing that I would just add is we definitely see that the labor market continues to be competitive and there are some challenges particularly in nurses and certain hourly positions like caregivers and CNAs. But there is definitely a stabilization in the labor market, which has resulted in less labor market churn. And so when you think about that, there will be more muted inflation in labor costs on a per employee per hour basis than we saw in prior years.

Speaker 4

Thank you.

Speaker 5

Thanks, Ben. Thanks, Ben.

Operator

Our next question comes from the line of Joanna Gajuk of Bank of America. Your line is now open. Please go ahead.

Speaker 6

Hi, good morning. Thank you so much. So I guess, first a follow-up on the pricing. So I guess we just talked about occupancy. So pricing, you made a comment around the pricing being up less than last year, but above the historicals.

Speaker 6

But you also mentioned in Q4 some activity around competition or competitive activity when it comes to pricing. So can you elaborate a little bit more what's going on? Is there just some markets where, I guess, you have to be more competitive? And kind of what do you assume going forward when it comes to this dynamic? And maybe just to confirm, I guess, pricing outlook seems is the guidance implies maybe mid single digits increases or so?

Speaker 3

Yes. Joanna, this is Dawn. What I would say is certainly when you're looking at our rev core for the Q4, it was impacted by the competitive markets and the our reaction to those competitive markets as well as disposition and a little bit of our product mix. Expectation coming into the Q1 is that as we put our January 1 price increase in effect that our expectation is that we would continue to grow our RevPOR.

Speaker 5

And let me just add to what Dawn said by saying, I'm really pleased with the way that our pricing strategy has worked out for 2023. And if I look back for the whole year and you see that full year RevPAR was 11.4%, that significantly outpaced our peers. So what that tells me is that we had the right balance for Brookdale of price and occupancy to get that outsized performance.

Speaker 6

Thank you. And if I may just another follow-up when it comes to, I guess, your outlook on EBITDA. And how should we think about the impact of the lease exits when it comes to, say, run rate, rent expense and anything else around EBITDA or occupancy impact from those lease exits that occurred in Q4?

Speaker 2

Joanna, I think you asked

Speaker 5

a question that's on many people's minds. What I would say is sitting in our shoes today, I'm very excited about the optionality that lease expirations give us at Brookdale. The way that I see it is no matter what happens with the lease, it's going to be good for our shareholders. If the assets are performing well, then we can extend the lease and continue that. If they're not, we can choose not to extend the lease and go forward or we may end up with a situation like we had with LTC where we ultimately chose not to extend the lease.

Speaker 5

That was 35 asset lease with LTC. But ultimately, we ended up releasing 17 of those assets under a favorable lease, which gave us CapEx support as well as favorable purchase options. So heads we win, tails we win.

Speaker 6

Right. I understood that was actually my question in terms of this LDC in particular the impact to the rent expense I guess going forward?

Speaker 3

Yes, Joanna, this is Dawn. What I would say is, the impact of the 2018 LTC dispositions, we would expect that to be modestly favorable as it relates to 2024.

Speaker 6

So you're talking about the kind of annual rent increases, but I was also thinking whether there's material impact when it comes to just not having these 2018 leases going forward?

Speaker 3

Yes. I think that that's what we would say from an adjusted EBITDA perspective, it would be modestly favorable for those leases going away.

Speaker 6

Okay. Thank you. And if I may, another question, different topic, I guess, in January, there were some hearings in Congress focused on the assisted living facilities, and they talk about quality of care, lack of transparency and standards. And I guess there's this special committee on aging that called for a government accountability of its GAO study on this topic. So kind of your thoughts around this in terms of what are the risks that there could be some efforts to maybe come up with some staffing requirements or many or other requirements for the operators?

Speaker 6

Thank you.

Speaker 5

Let me start by just saying at Brookdale, the health and well-being of our residents has always been our top priority and we are dedicated to providing high quality care and services to residents and their families. As a company, we're honored to enrich the lives of 100 of 1000 of seniors over the last decade and our communities have been recognized as some of the best in the nation. As an example, in the U. S. News and World Report Senior Living's ratings for 2023, Brookdale has more senior living communities in assisted living and memory care communities recognized than any other provider for the 2nd year in a row.

Speaker 5

Additionally Brookdale ties number 1 in customer satisfaction ranking in both 2020 2022 as recognized by JD Power for assisted living and memory care. It is true that Brookdale is one of several organizations that were contacted by the Special Committee on Aging, Senator Bob Casey, and we have provided a response. We're an advocate for seniors and we're willing to partner with others to serve the best interest of residents and promote assisted living in the industry. We take great pride in serving our hundreds of thousands of residents at communities across the country over the last decade. At this point, it's too soon to tell what the outcome of the inquiry could be.

Speaker 5

But I'm very comfortable that our focus is and has always been providing quality care.

Speaker 6

Thank you. Appreciate it.

Speaker 5

Thanks, Joanna.

Speaker 3

Thanks, Joanna.

Operator

Our next question comes from the line of Josh Raskin of Nephron Research. Your line is now open. Please go ahead.

Speaker 7

Thanks and good morning. I wanted to go back to the comment Don made about the 92% pre pandemic. I think same store operating income of 92% is better understand what that was. Is that on a per unit basis on a per occupied room or per available room? And then how do you sort of juxtapose that with the cost of capital and where do you think returns are versus where they were pre pandemic?

Speaker 5

Well, let me start by saying that and this is Cindy. Let me start by saying that we still have the recovery ahead of us. And so senior living communities operate most effectively at that 80 plus percent occupancy rate. So that is still ahead of us, but Dawn can address the, 92% that she referenced in our prepared remarks.

Speaker 3

Yes, Jeff. This is Dawn. The 92% was on available room basis and that's shown in the in our supplement on the same community slide. So you can reference there.

Speaker 7

Okay. I'll take a look at that. And then you guys have referenced that pre pandemic 84.5 percent total occupancy. I think you're about 600 basis points off of that. I think it's a little bit less if you look at just the AL side.

Speaker 7

So what's a reasonable time frame? As you think about that as a target, is that a 3 year time frame? Does that take longer? Just trying to figure out cadence of occupancy improvement.

Speaker 5

So what I would say, Josh, is our goal is to recover as quickly as possible. I think there are a number of factors that will impact the timing of our recovery. First, we're seeing incredibly strong supply and demand demographics with more seniors entering our target market this year than ever before, we're seeing a very muted supply environment given the constraints of the pandemic on our industry as well as capital tightening. And then I would say that the Brookdale differentiation is continuing to grow. We're very excited about Brookdale Health Plus.

Speaker 5

We're excited about the quality care that we're providing. And so our goal is to serve as many seniors as we can as quickly as we can. But it's too soon to comment on exactly how long that full recovery is going to take.

Speaker 7

Okay. And if I could take a last one and you actually just mentioned it Brookdale Health Plus. I'm curious on the economics of residents that are enrolled in, I guess, sort of the program. I don't know if that's community based or if that's I assume that's room by room. Is there a difference in the economics of and the margin of that individual resident?

Speaker 7

Is there a difference in length of stay? Maybe any just sort of economic data that would be helpful for us?

Speaker 5

So there is no incremental cost to a Brookdale resident for Brookdale Health Plus. We price it as part of the care charges in that particular community. And one of the things that's exciting about Brookdale Health Plus is it is an innovative care model designed to close care gaps. And so when we put into a community, we completely change the operating protocols of that particular community, which has resulted in sort of 78% fewer urgent care visits compared to similar residents living outside of Brookdale and 36% fewer hospitalizations compared to similar individuals living outside of Brookdale. But what excites me most for the shareholders of Brookdale is that we have seen that Health Plus Communities profitability grows much faster than non Health Plus communities.

Speaker 5

And so for our shareholders, we think there's going to be a strong return by supporting the health and well-being of our residents even more than we previously do.

Speaker 7

Right. So when you say it's not there's no incremental cost to the resident, but that community I assume that their care charges are higher than a non Brookfield Health Plus community. Is that the way to think about it?

Speaker 5

Not necessarily. Our business case was built on the fact that it would be an attractive value proposition for residents and that would, as you mentioned, help us increase length of stay. Now one of the things that is true is because we've been rolling Health Plus out over the last few years, we haven't gotten to a stabilized length of stay for those communities yet. And so that's one statistic that we're still watching. But we're encouraged by the residents that are choosing Brookdale as a result of Brookdale Health Plus.

Speaker 7

Got it. Thank you.

Speaker 5

Thank you, Josh.

Operator

Thank you. As this concludes our Q and A session for today, ladies and gentlemen, I would like to thank you for joining today's call. Have a great rest of your day. You may now disconnect your lines.

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Brookdale Senior Living Q4 2023
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