Good morning. My name is Ginger, 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 2017 Earnings Call. [Operator Instructions] Mr. Ross Roadman, Senior Vice President of Investor Relations, you may begin your conference.

Thank you, Ginger, and good morning, everyone. I'd like to welcome you all to the fourth quarter and full year 2017 earnings call for Brookdale Senior Living. Joining us today are Cindy Baier, our Chief Financial Officer; and Lee Wielansky, a member of our Board of Directors. As we announced this morning, our Board of Directors appointed Cindy as our President and Chief Executive Officer and as a Director effective February 28, to succeed Andy Smith. We also announced that Lee has been elected to serve as Non-Executive Chair. I'd also like to introduce Kathy MacDonald, who is taking over as our Senior Vice President of Investor Relations. Kathy is an experienced Investor Relations professional who came to us from Mead Johnson Nutrition and has been working with me here for several months. I am transitioning to another position within the company, with the goal of helping to advance the plan that Cindy will talk about today. I would like to point out that 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 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 to update earlier statements. Certain other factors that could cause actual results to differ materially from our expectations are detailed in the earnings release we issued this morning, as well as in the reports we filed with the SEC from time to time, including the risk factors contained in our annual report on Form 10-K that we filed earlier today. When considering forward-looking statements, you should keep in mind those factors and the other risks factors and cautionary statements in such SEC filings. I direct you to 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 important 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 Lee. Lee?

Good morning to all our shareholders, analysts and other participants, and welcome to the Brookdale's Fourth Quarter and Full Year 2017 Earnings Call. As you are most likely aware by now, we made several significant announcements this morning, regarding a turnaround of Brookdale. I will discuss the details of the strategic review and leadership changes and then turn the call over to Cindy to describe our path forward. As we announced this morning, we have formally ended our strategic review, and as we promised in previous earnings calls, I will give you insights into the process. We announced to kick off our strategic review in February 2017. The board and management, assisted by our legal and financial advisers, explored multiple options and alternatives to create and enhance shareholder value. Throughout this process, we stated that Brookdale would enter into a transaction only under terms that our board concluded will be in the best interest of the company and its shareholders. It was a long and robust process. We received interest from numerous potential counterparties. We reviewed a number of proposals, and we had in-depth discussions with multiple foreign and domestic parties regarding various strategic alternatives, including but not limited to the sale of the company. We went through multiple iterations and negotiations with several of these counterparties. As we noted before, the process was complicated by the need to incorporate certain third-party consents, and we were conducting parallel negotiations to seek those consents throughout the process. An important outcome of the strategic review process was the HCP transaction that we announced in the fourth quarter 2017. This improved the change of control provisions in some of our lease agreements and provides the company with more transactional flexibility. At the end of the strategic review, the board ultimately rejected an indication…

Thank you, Lee. Let me add my good wishes to Andy, Dan, Bill and Bryan Richardson, who is also leaving the company. On behalf of the leadership team and our associates, I want to thank them for their years of service to Brookdale. I'm honored to take on this new role, and I'm excited by the opportunity. Although Brookdale has underperformed, we have a strong foundation and tens of thousands associates who are committed to our mission and to the residents we serve. I look forward, with the help of the company's associates, to restore the company to our previous success by shifting our focus to winning locally, while leveraging our industry-leading scale. With the changes that I will describe today, we intend to drive attractive, long-term return for our shareholders. In the past few months, by working shoulder to shoulder with the key operational leaders, we have analyzed our operations to determine what is working and what is not. We developed a concrete plan to focus on the key value drivers of our business model to improve the performance of the company. We will measure our progress against preestablished metrics. We will be intentional about what we're going to focus on. We have a robust road map to achieve Brookdale's long-term growth potential. I'll share the details with you shortly. At the same time, we know that our real estate philosophy is a critical value driver. Our goal is to optimize our portfolio, while opportunistically creating value from owned real estate. Let me review our history and highlight the decisions that we've made about real estate. After integrating Emeritus communities in 2015, we undertook a comprehensive review of our portfolio. In 2016, we began our portfolio optimization initiatives. Since then, we have sold or terminated leases for 165 communities.…

[Operator Instructions] Your first question comes from Brian Tanquilut from Jefferies.

This is Jason Plagman on for Brian. So Cindy, just -- I know you touched on this in your prepared comments, but can you just comment on kind of your key areas of focus for the first -- your first 90 days in the CEO role then even 365 days kind of what are your top 2 or 3 priorities that you'll be spending the most time on?

Thanks for the question. Our top priority is to turnaround our company performance. We're focused on winning locally. This was very successful for us in the past, and we're confident that our new plans will work. We've already identified and started initiating changes. We're holding ourselves accountable just like we know you will, not only to make the changes, but also to measure and report on key operational metrics. We plan to execute on a wide range of initiatives to create long-term sustainable value for our shareholders.

And then, I think you mentioned ongoing discussions with your real estate partners. How are you thinking through that? And that was big area of focus during strategic review process. Are you still working towards reducing the barriers related to those consent processes?

We are looking for win-win relationships with our REIT partners. We value those relationships.

Okay. That makes sense. And then just on the numbers, I don't know if I missed it, but did you mention on your outlook for month -- annual rent increases, both in-place and the improved mark-to-market place? How are you thinking about where rent increases will shake out for 2018?

So we didn't provide specific guidance for our rent increases, but we do expect to see normal in-place rent increases. And we expect to see continued pressure on mark-to-market on our same-store communities.

Your next question is from Joanna Gajuk from Bank of America.

Cindy, congratulations. So actually, on the last question partially, because on the Slide 18, I guess, you talk about the expect -- margin expansion in 2019. So should I read into this, so you're trying to say that, I guess, and your comments kind of suggested because you said '18 will be a challenging year, so we should think about sort of not seeing margin expansion in 2018?

That's correct. It will be a difficult year, but we expect to return to year-over-year growth in 2019.

And did I hear it right, so you talk about the labor cost outlook for '18, 5.5% to 6%? So was it for the full year '17?

We are close to 6% in the fourth quarter and over 5% for the full year. So if you think about 2018, we're expecting to see similar labor growth and that is total compensation, including benefit on our same communities.

All right. And then, you also said that in also the -- one of the slides, talk about reducing or rather realigning how you spend your CapEx, right? So you have this metric here when you kind of talk about, it seems the recurring CapEx or the community level CapEx. So can you maybe flesh out your view in terms of the different buckets for your total CapEx? Also Program Max and EBITDA, enhancing CapEx and any piece of corporate versus recurring, how can you -- so how should we think about it for next year or maybe the next couple of years in terms of changes versus Q4, for example?

So Joanna, we're not giving formal guidance in this call, but what I can say with regard to our community level CapEx, on a same-store basis, it's not going to be terribly different than 2017. We are expecting to increase our Program Max investments. And as you know, we think Program Max is something that drives a lot of value for our shareholders. We normally see double-digit returns on those projects and so we want to invest more there. I will also say that in 2018, we will have hurricane-related Capex as we finished cleaning up the damage in Florida, primarily from the hurricanes that hit their last year and some extra onetime CapEx potentially to respond to the new legislation that's in process for Florida generators.

Right. So I guess, on that front, so you said it -- you plan to increase the Program Max because that's where you see the highest returns. So what are the some of the examples of projects that you mentioned that you will try to, I guess, walk away from, so to speak, or refocus this spending. So is it the cap exposure? Or is it something also that's could on the operating expenses? So any kind of examples you can give us in terms of things you -- as of now, you decided to kind of reduce exposure because what I'm getting at is, is there something where you kind of considering maybe reducing your Ancillary Services business at all?

So let me take that question. I think there are a few questions in there. So first with regard to CapEx, we are not reducing the number of CapEx projects we have by any mean. In fact, with Program Max, we're increasing the number of projects that we have underway, but as you think about the impact of projects on the community, our objective is to reduce well-meaning initiatives that are impacting our communities. So if you think about it, there has been numerous, numerous department-driven pilot projects that consume the time of our community leaders. We have and will continue to eliminate many of these. Regarding streamlining, one example that we significantly abbreviated was a 600-item questionnaire that previously each community had to complete. We're also improving our decision rights. And so one of the focus areas that we have is we want our decisions to be as close to the customer as they can be. So we're empowering our executive directors and that's something that's a pretty big focus for us. With regard to our Ancillary Services business, we think that's a critical part of our business and we think that it provides a differentiation for our customers as they're able to get additional care within the same company.

Your next question comes from Chad Vanacore from Stifel.

So Cindy, you mentioned occupancy, you're in a difficult December, but also we look at occupancy, it had been up 40 basis points sequentially in the fourth quarter. So how did that occupancy trend by month?

So we were up in October and November and then we were down in December. Now in December, there are 2 things that were challenges for us: the first was it was an unseasonably harsh weather pattern and the second was that the flu season started much earlier this year than it normally does. Normally, we don't see a flu impact until the first quarter, but we did see the flu hit our communities in Q4, particularly in Northeast. Now as I've mentioned, when there is flu in a community, we basically close the community. And we do that to protect our residents. We also do that to make sure that we're protecting everyone. So when that happened, we can't give tours, we can't move new residents in and so because of that you have an impact on occupancy.

Right. And it seems like that occupancy is bleeding into the fourth quarter, and you had mentioned that the flu had really closed to -- down for about 1,000 days in that first 45 days in a month. So how has -- how's that occupancy trended in January? Can you put a number to it?

I won't put a number to it, but what I will say is that in Q1, we normally experienced a seasonal decline. So Q1 is always, almost always lower than sort of Q4 and 2018 is no different than that. As you did mention, we are having a flu impact. It's the worst flu season for seniors as it's been in 20 years. And so that has an effect not only on our move-ins, but also in having an increased death rate.

So to the best of your estimate, what would you say the actual flu impact is over, what would be normal seasonality?

It's too soon to say. As far as we know, the flu impact hasn't peaked yet. It normally peaks about this time, but we're still seeing pretty elevated path. When we get together on our next call, we'll be able to provide additional clarity on that for you.

All right. Well, I guess, I will change gears a little bit. And then just thinking about the strategic review process, what were some of the terms in that indicated offer that you mentioned that the board felt was unachievable or untenable?

Lee, do you want to take that one?

As we said in our previous comments, the offer was $9 a share and...

All right. So really price basically?

Say it again.

If it's -- if that was really the -- if price consideration was the -- was a stumbling block?

Yes.

All right. And then, just one... Go ahead.

Just -- I mean, to comment -- I mean, we look at the net asset value of the company, and we felt like that for shareholders that it's -- it's worth a whole lot more than $9 per share.

All right. Then just switching gears one more time. The G&A cut that you expect to happen in 2018. You are looking at a run rate at $25 million once fully enacted, when do you expect to get to that full run rate?

So the $25 million is the impact for 2018. An annualized impact of that is over $30 million. And I will say that we've already taken a large number of the actions this week, in fact. Just to remind our G&A. Now a quick reminder, the $25 million is before normal cost inflation and before normalized bonuses. Because we underperformed last year, we paid much lower than normal bonuses and our expectation is that we will perform in 2018 and so we will pay normalized bonuses.

All right. But to get $25 million, how should that trend through the year?

You should expect to see most of the impact by Q2 and Q3, but you'll see a significant impact in the last part of Q1 as well.

There are no further questions at this time. Cindy, do you have any closing remarks?

So I would like to thank everyone for joining us on the call today. And I look forward to talking to you more.

Ladies and gentlemen, thank you for participating in today's call. At this time, you may now disconnect.