Good morning. My name is Jennifer and I will be your conference operator today. At this time, I would like to welcome everyone to the Brookdale Senior Living Fourth Quarter and Full Year 2016 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question and answer session. [Operator Instructions] Thank you. And I would like to turn the conference over to Mr. Ross Roadman.

Thank you, Jennifer, and good morning, everyone. I would also like to welcome you all to the fourth quarter and full year 2016 earnings call for Brookdale Senior Living. Joining us today are Andy Smith, our President and Chief Executive Officer; Cindy Baier, our Chief Financial Officer; and Dan Decker our Executive Chairman. I like to point out that all statements today, which are not historical facts including all statements regarding our earnings guidance may be deemed to be forward-looking statements within the meaning of the federal securities laws. These statements are made as of today's date and are subject to various risks and uncertainties. Forward-looking statements are not guarantees of future performance. Actual results and performance may differ materially from the estimates or expectations expressed in those statements. Future events could render the forward-looking statements untrue and we expressly disclaim any obligation update earlier statements. Certain of the factors that could cause actual results to differ materially from our expectations are detailed in the earnings release we issued this yesterday, as well as in the reports we file with the SEC from time-to-time including our Annual Report on Form 10-K and Quarterly Reports on Form 10-Q. When considering forward-looking statements, you should keep in mind those factors and the other risk factors and cautionary statements in SEC filings. I direct you to seek with the Brookdale Senior Living's earnings release for the full Safe Harbor statement. Also please note that during this call we will present both GAAP and non-GAAP financial measures. I direct you to our earnings release and our supplemental information which may be found on the Investor Relations page at brookdale.com for information regarding the Company's use of non-GAAP measures including the definitions of each of these non-GAAP measures and a reconciliation of each such measure from the most comparable GAAP measure. With that, I would like to turn the call over to Andy. Andy?

Good morning and thanks for joining us. As always, we appreciate your interest in Brookdale. I would like to make a few comments about the fourth quarter and then spend most of time discussing our outlook for 2017. But before I do that, I’d like to ask Dan to make a few comments at this point. Dan?

Thank you, Andy, and good morning to everyone. My remarks will be brief this morning. I’d spend a significant amount of time over the last few months talking with many of our shareholders to hear their perspectives on our company. On behalf of the board and management, I want you to note that we truly value your feedback and advice. Let me assure you that our Board of Directors and our management team are very focused on the creation and maximization of shareholder value. Brookdale’s board and management team regularly engage in a wide range of strategic opportunities to enhance shareholder value and I can report that our Board and management team working together with our legal and financial advisors are in a process of exploring options and alternatives to create and enhance shareholder value. Obviously, there can be no assurance that this review will result in any specific action or transaction, I want to reiterate that no decision is made to enter into any transaction at this time. Brookdale will only enter into a transaction or transactions if it can do so under terms that our board concludes are in the best interest of the company and its shareholders. While our review process is active and ongoing, there is no such timetable for us to conclude. As I am sure you will understand, we are not in a position to answer any questions or make any additional comments about this subject at this time. Andy, I’ll turn it back to you.

Thank you, Dan. While the process review that Dan mentioned is ongoing, I want to assure you that we remained fully committed to our residents and our associates and to the continued execution of our business strategies. Simply stated, we will continue to remain focused on achieving consistent operational excellence. Now, I would like to cover four topics in the balance of my prepared remarks and update on our portfolio optimization initiatives, our assessment of the competitive environment, a few comments about our fourth quarter performance and finally, our 2017 outlook. Let me start first with an update on our portfolio optimization activities. This is an important initiative for us to position the portfolio for success as well as provide improvements to the company’s cash flow and balance sheet and we were successful at effecting a number of impactful transactions last year. During the fourth quarter, we sold 12 of the 28 communities that we had included in assets held for sale at the beginning of the quarter. In addition, we terminated leases on seven communities during the quarter, four of which went into an existing RIDEA relationship with HCP. These communities were part of the previously announced transactions with HCP. Including those transactions that I just mentioned, we sold 51 communities in 2016 generating $305 million of gross proceeds and we terminated leases on seven communities. We still have 16 communities held for sale as of December the 31st and we will continue to work to complete those sales in 2017. We believe that we are on track to close our joint venture for the 64 communities with Blackstone by the end of the first quarter. We also expect to terminate the leases on 26 other communities leased from HCP throughout the year. We intend to continue to actively…

Thank you, Andy, and thanks everyone for taking the time to join us today. My comments will be organized into four sections, to revise investor relations, full year 2016 results and highlights, Q4 2016 results and our 2017 outlook. Before I go into my comments about 2016, I’d like to make a few comments that our new investor relations materials and the metrics that we are focused on. First, I hope everyone has have a chance to visit our new supplement and investor deck which reflect the feedback that we’ve received from our ongoing shareholder discussion. And also is to be as transparent as possible and to make our disclosure as easy to you as possible. Our company is complicated and our capital structure is certainly complex. Our new supplement provides increased exposures as well as more user-friendly format. There are a couple of metrics within the supplement that I’d like to comment on. First, as we discussed at our Investor Day, we will be focused on adjusted EBITDA as one of our primary metrics going forward. As our adjusted EBITDA includes large amounts that integration, transaction, transaction-related and strategic project costs which I will call add backs, we will also discuss adjusted EBITDA excluding add backs. Second, we wanted to focus on the cash flow metrics that take into consideration the capital expenditures that we need to operate our business. In our Investor Day, we introduced some metrics which we called CFFO plus non-development CapEx. To simplify our communication, we are refining our cash flow metric and we will call it adjusted free cash flow. Adjusted free cash flow begins with net cash provided by operating activity and deduct community level capital expenditures and our corporate CapEx. It includes the net cash flow associated with entry fees and our…

Thank you, Cindy. Let me close by saying this remains an exciting business with huge potential. Although the near-term competitive landscape we discussed will be a factor in 2017, the demand tailwinds for our business only get more robust as time goes on. Our management team is focused and acting with urgency to improve our operating performance and we are happy to answer any of your questions now.

[Operator Instructions] And our first question comes from Chad Vanacore with Stifel.

I guess I am first saw have the honors of the asking first. If you are exploring options, would you think about the sale of a whole company? Or just maybe some parts of the portfolio?

Yes, Chad, what we said in our prepared remarks were that we were exploring all options that are on the table to increase shareholder and I think we have to leave it at that.

Okay, I respect that. Thanks, Andy. So just thinking about rate growth the next year, the comments were, you thought that rates would be the primary driver and you are expecting NOI in the senior housing to be offset by some higher wage inflation. Do you think you put a little more color on what levels of rate increases you saw a push through in January and what level of wage inflations you are seeing?

Hi, Chad, this is Cindy. I’ll take your question. So, in January, we have realized rate increases that range from over 3.5% to 5% on our in place resident population depending on the type of community. We feel pretty good about those rate increases. As we know with this time here, we haven’t gone through the discussions of our residents and we have a pretty good sense of what rate increases will hold. So while our revenue range is pretty broad given the competitive environment, we are off to a good start with regard to in place rate increases.

Okay, that's good and what about on the expense side?

On the expense side, clearly we get two factors that are the most significant factors for us. First is labor pressure and we outlined that in the call. The second is the purchase accounting reserve adjustments in our senior housing business that we made last year. We had $41.6 million of favorable purchase accounting reserve adjustments for GLPL and workers compensation and those will be a headwind for us the current year as a result of not expecting a similar level of adjustment.

All right. But what would you say your base wage pressures would be ex that?

Our compensation is expected to go up 5.5% to 6%.

Okay. And then just one more question on - just the occupancy side. What should we expect in 2017 with your properties? You are running mid to – or right around mid 80% occupancy, there is probably some room to grow when supply pressures ease a bit. So what should we think about 2017?

So, the first point as we’ll have normal seasonality during 2017 certainly in the first part of the year, you tend to see your occupancy decline. We are expecting supply pressure for most of 2017. So we do not expect growth in occupancy.

All right. Thanks a lot Cindy.

You are welcome. Thanks, Chad.

Thanks, Chad.

Your next question comes from Frank Morgan with RBC Capital Markets.

Good morning. On the question of occupancy, I guess, in light of the NIC math data and their projections over a flat occupancy environment for the year, you contrast that with your view, is there any more color you can provide us there? Is there something unique in the growth in your markets or you didn’t view yourself as being more conservative than you have in the past?

Well, I think as you know, our market basket or communities just slightly different than NIC. Certainly we are seeing more occupancy pressure in assisted living than we are in the rest of our communities. We’ve always said that our community is impacted for about a year after a time ne competition enters a market. And so, we’ve given a relatively wide range of revenue reflecting the fact that competition could hit us for most of the year. But with the upside at the top-end of our range, if we are able to perform better or if the competition is more muted than we expect.

And in terms of the - you referenced the slowdown in new construction starts, have you been able to verify that yourself? Obviously that is what NIC mapped out of this. But in all of your specific markets, do you have any kind of current intelligence on kind of the trends and specifically in the Brookdale markets?

Yes, sure, sure we do, Frank. The – you are right, the NIC data shows a slowdown in new construction. That’s confirmed by what we know from our local operator and sales folks. They keep a database of what’s going on in their marketplace. We also independently check through various services what construction permits have been pooled, et cetera through third-party resources and markets that NIC doesn’t cover. So we have what our operators tell us, we have some independent confirmation. And then finally, in addition to all of that, we have the anecdotal information that we get from financing sources, construction lenders and alike that we think they are getting more circumscribed in their willingness to finance new construction and of course construction costs have been rising through this period of time. So we think all of those things conspired together to cause us to feel like these new deliveries will begin to abate and the environment will get a little less hostel as we move into 2018.

Got you. Final question, just on the subject of this process that you are going through, obviously this has happened in the past, and we’ve kind of seen this movie before. Did you have any plans about how you will communicate in the future with regards to where we are either something happening or not? And do we have a timeline over which we would say we reviewed the process and we are either going or not going. Have you thought about a timeline on that? Thanks.

Well, as we said, and as Dan said in our prepared remarks, this process is active. It’s ongoing. We are focused upon it, but there is no set timeframe and if there is something appropriate to announce to the marketplace at the appropriate time Frank, we will of course do that. But there is no set timeline for this type of thing.

Okay. But just to be clear, if whatever is going on comes to a completion, you would notify of that?

At the appropriate time, we will notify you, yes, of the outcome of the process.

Okay, thank you.

All right, Thanks, Frank.

And your next question is from Joanna Gajuk with Bank of America Merrill Lynch.

Hi, good morning. Thank you so much for taking the question. So, in terms of how you talk about adjusted EBITDA guidance for 2017, right so, when you look in your site of Page 18 you have this pro forma 2016 adjusted EBITDA excluding the impact of the divestitures and other transactions. So do they implies – looking then on the next page on the outlook for 2017 and provides adjusted EBITDA down 5% obviously, there is impact from the – from divestitures. So, that was adjusting it or using the pro forma adjusted EBITDA of 2016 was provided there. But then I guess, there were some favorable reserve adjustments in 2016. So we adjust for that and maybe we should think about adjusted EBITDA are going to down 3.5% versus 5% or so, just on the face of it. So is that the right way to think about it? I know you did not went into talking about your same-store NOI Outlook for 2017. So that's what I am trying to kind of assess here in terms of the range of potential outcomes here.

Sure. Joanna, as you correctly point out on Page 18 of our investor deck, we have given you a pro forma adjusted EBITDA excluding for the impact of a transaction that was either completed in 2016 or will be completed in 2017 and that gets to an adjusted EBITDA on a pro forma basis of $675.5 million. Now, if you adjust for the $40 million or $41.6 million of pre-Emeritus purchase accounting reserve adjustment, that will get you down to 630. So, I think what you’ll see is that the midpoint of our guidance would reflect improvement on a year-over-year basis just we can overcome the transaction impacts, which are designed to have a positive cash flow including the impact of CapEx for a negative adjusted EBITDA impact as well as the headwind of the purchase accounting reserve favorability.

Great. That's helpful, yes, right, because on the call you then said though, it was close to $42 million of these adjustments, I was using a lower number. So that's helpful. But then on that front, so, you said that there was a favorable resolution during Q4 of this year or 2016 from these items related to legacy Emeritus. So, did you quantify it or did I missed it in? What was in Q4?

In Q4, it was $6 million or so in the fourth quarter in our senior housing business. So much smaller in the first quarter as we had expected.

Okay, great. And then this number of the $6 million will be included in the same-store – the same-store NOI you talk about being down 3%?

Yes. On Q4 to Q4 basis, it included in the same-store on a year-over-year.

Okay, that's helpful, And then lastly a quick question, I know you in the – you give the non-development CapEx outlook for 2017. So how much is planned to spend on the items that I guess is not in that which is I guess the program Max?

$45 million to $50 million Joanna on program Max.

Okay, great. That’s all for me. Thank you so much.

Your next question comes from the line of Brian Tanquilut with Jefferies.

Hey, good morning guys.

Hey Brian.

Hi. Andy, as we think about 2017, it seems like it’s sort of a reset year or rebasing year of choice. How are you thinking about 2018? I know you talked about occupancy – or new construction kind of slowing down towards the end of this year, but how should we think about the pricing power, the – your Outlook for your ability to bring on occupancy up if new construction tapers off? And on the cost side, you talked about raising wages for some of your managers, but is that’s sort of the new normal we should be thinking about? Or is that something you think can taper-off as competition dies down or flattens out? I mean, just wanted to see more of your long-term view on the business beyond 2017?

Right. Well, I’d start by saying, Brian, that look, I think the value proposition that we as a company and we as an industry provide to the seniors that we serve in their families is only going to grow and only going to become more apparent. As the country ages, and as the number of folks available to take care of that aging population goes down. So we are very bullish about the long-term prospects for the company including a more favorable environment as we go into 2018 and I think I will produce a rising occupancy market for Brookdale as we kind of get out of this piece of this competitive storm. So I definitely think you could expect occupancy growth in a more accelerated way beginning in 2018. Also going back to that value proposition that I referred to earlier, I think that will allow us to continue to get good rate performance throughout 2018 and beyond. Again, I think the value proposition of what it is that we provide which can’t be replicated except that enormous cost in a single-family residential or an apartment. I think the value proposition gets even clear and I think that will give us pricing power as we move forward. My own perspective on the labor market and this is just one man’s view, is that I think we are kind of at the apex of – in 2017 for our industry and our business we are kind of at the apex of the increase, that’s partly because, again as we indicated in our prepared remarks, we aer adding some labor to our communities to what we – to assist us in reducing the turnover and increasing the retention in some of these key positions. We’ve done a pilot program with respect to our health and wellness directors that is been for the past six months, which has been pretty – which has been very successful. And that adds a little bit of short-term wage cost, but over the longer-term, we think that’s the right thing to do and actually will help our overall economic performance. So, that’s a long way around of saying is, is I think 2017, again, I am not an economist, but I think the labor is, as we move into 2018 and beyond, I think the – I don’t think you will see as much labor bump as we are seeing in 2017.

Okay, got it. And then, Andy, tend to follow-up on the point on the value proposition, so, you alluded to your home health business as one area that you are trying to grow. So, given multiples were seeing in the market for home health assets, right, and the growth rate that that business is generating, as well as the valuation investors are giving you right now because primarily you pay it for real estate, so, what is the strategic value of keeping home health at this point as you guys look at it from that perspective?

Well, the – we think the home health business is a growth business. We think that the hospice business has very attractive growth opportunities. We think the ability to provide those services in a seamlessly coordinated way within our communities and where we have geographic concentration out into the general communities as large, we think that’s a big competitive differentiator for our business and we actually going to become a growing differentiator as the industry that are interfaces with the balance of the post-acute system as well as the healthcare system. Generally, we think it’s a differentiator into our customers, but we also think it will be a differentiator to those other participants in the healthcare system who are all going to be looking for ways to get better quality outcomes for seniors as they age at a lower cost. And we think that senior living coupled with a home health and hospice program, that’s a big differentiator for us that frankly we don’t think other people can emulate at least its scale.

All right. And then last question for me, we are hearing that the flu season is really acute right now and we are almost back to at that level. So, we know that has an impact on your business. A few questions, number one, what are you seeing there on that front? And then second, what is embedded in your guidance in terms of flu season impact? And how should we be thinking about Q1 as it relates to that specific factor?

We like the country itself has experienced flu jumping up and spiking beginning in December and it’s continued into January. Actually the last week was continued that trend, So we have seen a rise in death and deaths in terms of turnover at our attrition with respect to our residents. We’ve seen an elevated level of death at the end of last year and that’s continued into January of this year. That our expectations for the flu were built into how we thought about occupancy that Cindy just described, as we built our 2017 plans.

Cool. Got it. All right. Thanks, Andy.

Yes, thank you, Brian.

And your next question comes from Ryan Halsted with Wells Fargo.

Good morning.

Hey, Ryan.

Just wanted to go back to the strategic review, so, obviously this was an avenue the board went - looked into in the past. So, I’d be curious to hear what’s different now you that you are seeing in the marketplace? Or what’s different now internally, as far as how the board in evaluating alternatives today?

Well, as Dan said, and I could reiterate on behalf of the board and the management team, we are all about assessing ways to increase and enhanced shareholder value. I don’t know that – I mean, there are lots of things that are different in the environment. The competition et cetera, we just talked about, but, what’s driving us is what we think is important which is, it’s incumbent upon this board and this management team to constantly assess whether there is an attractive transaction or set of transactions that we ought to execute on behalf of our shareholders. And that’s what we are doing. We are in a process of reviewing that. As we said, we are actively engaged in that process. There is no set timeframe. We can’t make any assurance that anything is going to come from it, but as we go through their process, if and when it’s appropriate to update our shareholders, we will do so.

Okay, that's helpful. And then, you mentioned discussions with your lessors about potentially revisiting your lease agreements. Any color you can provide on that? Should we be thinking of a similar situation as 2016 and some of the transactions that took place in this year, in 2016? Sorry.

Yes, thank you for the question, Ryan. First let me say, I mean, we have a good relationship with all of our lessors, all of our major lessors, all of the big healthcare REITs. We and they are constantly assessing ways to modify our portfolio or our contractual arrangements with one another for the good of both parties that would – you have to obviously work for Brookdale and that that’s obviously worked for each of those REITs. Each one of whom have to assess the opportunities before them in light of their own individual circumstances. So we engage with them quite consistently to see if there are things that we can do to improve our leverage levels and our cash flow. But they – we have to do that in a way that woks for them. And so we – both sides of the equation we search for opportunities that create mutual benefit and we are going to continue to do that with all of them. I don’t – I can’t give you a foreshadowing for what that might portend, Ryan, because it depends on each particular negotiation. All I can say is, there is receptivity on behalf of each of – of all of our landlords to work on things that work for them and work for us as well.

Okay, that's helpful. And maybe on the CapEx outlook, I just wanted to get a sense of how you feel about sort of the long-term step down goals you guys have outlined in the past? I think - how do you feel about that 1600 to 1800 per unit goal that I think you've laid out last year?

We are still comfortable at the 1800 level for 2018.

Okay. And then just last one on the costs, Cindy, any sort of aspirational goals with additional corporate overhead savings for 2017?

None that I am going to commit to you publicly.

Okay, thanks for taking my questions.

Thanks, Ryan.

Thank you, Ryan.

And we have no other questions in queue at this time and I would like to turn the call back over to Andy.

Thank you all for joining us this morning. We appreciate your time and we are available to follow-up. We know we’ve given you a lot of new information. We hope that’s helpful. We look forward to your feedback and we thank you again for participating.

Thank you for your participation. This does conclude today’s conference call and you may now disconnect.