Good morning, ladies and gentlemen. My name is Mary, and I will be your conference operator today. At this time, I would like to welcome everyone to the Brookdale Senior Living Third Quarter Earnings Release Call. At this time, all lines are on mute. We will open the lines for questions at the end of the call. As a reminder, this conference will be recorded for replay purposes. I would now like to turn the call over to Kathy MacDonald of Investor Relations.

Thank you, and good morning, everyone. I'd like to welcome you to the third quarter 2020 earnings call for Brookdale Senior Living. Joining us today are Cindy Baier, our President and Chief Executive Officer; and Steve Swain, our Executive Vice President and Chief Financial Officer. All statements today, which are not historical facts, may be deemed to be forward-looking statements within the meaning of the federal securities laws. These statements are made as of today's date and we expressly disclaim any obligation to update these statements in the future. Actual results and performance may differ materially from forward-looking statements. 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 the Annual Report on Form 10-K 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 our 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 brookdale.com/investor and was furnished on an 8-K yesterday. With that, I would like to turn the call over to Cindy.

Thank you, Kathy. Good morning to all of our shareholders, analysts and other participants. Welcome to our third quarter earnings call. Let me start by saying that we are a resilient company and our top priority is to support our residents, patients and associates through this pandemic and on to better times. Our leadership as viewed by residents, prospects and trusted partners will drive long-term value for our shareholders. Throughout this unprecedented period, we have taken swift and robust actions to strengthen our operations and our financial position. In the third quarter, we completed several significant financial transactions that built on the decisive actions we took earlier in the year. First, we completed a transaction with Ventas, which permanently cut our rent expense nearly in half for the remainder of this lease. In total, we lowered our lease payments by $500 million through 2025, lowered our debt and improved our long-term cash flow outlook. This was the most significant negotiated improvement to a lease in our history. Secondly, we recently executed two important financing transactions. In August, we refinanced the assets securing our credit facility with non-recourse long-term mortgages, and in September, we replaced substantially all remaining 2020 and 2021 maturities with new 10-year debt. These financing transactions lower interest expense, extend maturities and continue to enhance our financial flexibility. Turning to operations, we made significant progress in the third quarter as we learned to live with the ever-present risk of COVID-19. We believe the well-being of our residents requires a delicate balance between actions that help keep our residents safe and actions that promote their emotional and social well-being. We created solutions and trained our people to begin this new chapter. Since the early days of the pandemic, we have been a clinical and operational leader in our industry…

Thanks. To build on Cindy's last statement of having a strong liquidity position, let me start with highlights for the third quarter. First, I am pleased that we completed two significant financing transactions. As a result, we have no significant debt maturities until 2022. Second, we will recognize nearly $1 billion of future lease savings based primarily on year-to-date completed transactions. Third, for senior housing, occupancy declines slowed from July through September. In addition, for the third quarter, we maintained our rate discipline and even improved same community RevPOR 60 basis points sequentially. Fourth, in Health Care Services, revenue for home health, the largest business in the segment, returned to growth on a sequential basis. And lastly, we kept a tight control on operating activities while continuing our commitment to quality care. Discretionary CapEx was cut, expenses were reduced except for intentional investments such as marketing, and year-to-date G&A excluding transaction costs and non-cash stock-based comp continued to be 11% lower than prior year. Let me provide some color with financial updates related to COVID-19. As a reminder, we provided a COVID financial impact summary on page 4 of the supplemental. These government grants, deferrals and COVID-19-related costs are included in our reported and same community financial results. In the third quarter, we recognized $10.8 million of government grants as other operating income. The majority benefited the Health Care Services and the skilled nursing units within our CCRC segments. The grant income was from satisfying the conditions of the previous allocation, incremental infection control fund allocation and state grants. As Cindy mentioned, we expect Phase 2 grant funds in the very near future. For COVID-19 costs, we incurred $24.5 million of expense in the third quarter, bringing the year-to-date expense to $95 million. After building multiple months' supply of PPE…

Our business is built one relationship at a time by people taking care of people. I am incredibly proud of the actions we've taken to support our associates, residents and patients to ensure this business is strong for the long-term. We have listened to the feedback we've received from the people that are part of our communities, and that has made us better. We are going to keep doing that. From a financial perspective, we have taken far-reaching actions to reduce our rent expense, lower debt, improve cash flow and enhance our overall financial flexibility. As an industry leader, we remain focused on being a trusted partner to deliver quality care in an environment that helps keep associates, residents and patients safe during this pandemic. We are also committed to sharing our expertise with others outside of Brookdale. Looking ahead, it remains undeniable that the silver wave of the baby boomer demographic growth is approaching. With nearly 1 million new potential residents a year starting in 2022, the demand for senior care will increase. While I'm increasingly optimistic about the near-term availability of a vaccine to accelerate our recovery, we will continue to manage our business, operate our communities and serve our residents and patients in the best way possible in today's environment. Thank you.

Mary, this is Kathy. We are ready for the Q&A.

Thank you, Kathy. Your first question is from Brian Tanquilut. Your line is open.

Hey. Good morning, guys. I guess my first question, Steve, thanks for the color that you gave on Q4 occupancy trends and your expectations. But just wanted to ask how are you thinking about the blending of typical seasonality for Q4, as well as you guys reopening the facilities or the communities to visits and people coming in to check the place out? And then, what do you think the catalysts are would be for recovery back to pre-COVID levels?

Sure, Brian. So, the occupancy question, as you know, the virus is unpredictable. We expect to see a sequential decline in occupancy. But we do expect that to moderate again in the fourth quarter. It's important to keep in mind that some of the key drivers for occupancy and recovery, 95% of our communities are open and accepting residents. The low infection rates that we currently have in our communities is certainly a plus. And our survey that Cindy mentioned on the call states that the majority of our residents say that our COVID response is on target. So, looking long-term, that focus on the well-being of our residents certainly is the right strategy. In addition, we're continuing to make marketing investments. We added marketing in the third quarter and also into the fourth quarter. And then lastly, as Cindy mentioned, we see an increasing likelihood of a vaccine, and so we think that senior living communities being ranked and prioritized to receive the vaccine will certainly help occupancy in the future.

Brian, I will add just a couple of things to Steve's answer. He did a great job of teeing it up. But it's important to remember that at the beginning of the third quarter, we had our communities largely closed to visitors as we were completing our baseline testing, and also within the communities, there were a lot more restrictions than we have today. And we know that being able to have visitors is important to our residents. And so, that is something that – as we look at the fourth quarter, that should be better for us than the third quarter. I think another thing that's important to remember is Brookdale, the industry and the regulators have gotten a lot more experience in working through COVID-19. And initially in the pandemic, if you had a single positive COVID-19 case, you could not move anyone into the community. Now that we've demonstrated the strength of our infection control protocols, in some cases, not in every case, we're able to continue to move residents in even if there is a single positive COVID-19 resident in the community. And then, I think the vaccine is an important fuel for our recovery, and it's great that senior living is prioritized at the beginning of that both our residents and staff. And then, I just want to ask – or mention the rate. We have been very, very disciplined about the rate during the entire year of 2020. And the fact that our RevPOR increased sequentially 60 basis points and that actually helped us improve our income on a same-store basis 70 basis points, I think that's something that is important because it's really not just about occupancy. It's about getting the most revenue from your available rooms and maximizing RevPAR. So, just balancing occupancy and rate is always something that we're going to do to accelerate our recovery.

Yeah. That makes a lot of sense. And then, Cindy, you obviously did some refinancing or restructuring of the leases during the quarter. How are you thinking about incremental opportunities to do that and then how are you thinking also about the Healthpeak announcement, I think it was yesterday or earlier this week, that they're trying to reduce their exposure to senior housing and just stay with CCRCs?

Well, I think the one thing that Brookdale has demonstrated is that we will be nimble and that we will respond to current market condition. And we have been incredibly successful over the last few years creating win-win transactions. Now, it's impossible to know when the opportunities will arise. But whenever possible, we'll look to create additional value for our shareholders through lease renegotiations. As for the Healthpeak transaction, I think that it's important to know that Healthpeak has been an important partner for Brookdale and we are grateful for their support. We do lease a number of communities from them, and we expect that even if they transition the properties that we would have a strong relationship with the new owner of the properties, and importantly, continue to receive CapEx funding that Healthpeak committed to under the lease, and of course, we would continue to make our rent payments as due under the lease (00:37:33).

Got you. And then, last question for me. Steve, just as I think about your debt maturities and thinking about the cash flows that you're generating, given the occupancy trends, how are you thinking about the stack of upcoming maturities and how you're thinking about funding those payments? Thanks.

You bet, Brian. With continued access to credit, we were really pleased with our execution of two important financing transactions in the third quarter. Following those transactions, we have no large maturities in 2020 or in 2021. And the important part also is that like 98% of our debt, these financings were non-recourse property-backed mortgages and effectively free of operating performance covenants. With an initial rate of approximately 3% combined with a third of our debt structure having a variable rate, we lowered interest expense in the third quarter by $7 million on a year-over-year basis. So, suffice it to say that we were very pleased with this proactive step to strengthen our financial position.

Got you.

I think the financings are good evidence of strong financial and operating actions that Brookdale has decisively taken throughout 2020 and during this pandemic. Thank you so much for the questions, Brian.

Thanks, guys.

Your next question is from Steven Valiquette. Your line is open.

Great. Thanks. Good morning, everybody.

Hi, Steve.

So, a couple of questions here. One just on the COVID vaccine since you just kind of brought that up. I guess I'm curious whether or not Brookdale has completed any sort of marketing surveys just to assess the sensitivity of prospective residents that enter senior housing with or without a vaccine? Or in other words, would you expect the COVID vaccine to have an immediate notable impact on, let's say, your monthly and quarterly occupancy or would this take maybe several quarters, maybe even a year or more before it would lead to a – what we will call maybe a material move back up in your occupancy trends the way you see it right now?

Yes. Steve, we regularly conduct market research in our markets, and one of the things that we see is that consumer sentiment changes every time we do the survey. The good news is that we're seeing the majority of residents and prospects still think that senior living is a safe solution. And what we have seen is improvement in healthcare professionals and their willingness to recognize senior living is an important way to help their patients live a better life. And that's actually improved since the early stages of the pandemic. With regard to a vaccine, I think that what everyone is trying to figure out – or at least the vast majority of people are trying to figure out is how to reduce risk. And so, while we haven't conducted consumer research on the vaccine, it is something that we're watching the research that's available to us, and we do know that there's a focus on reducing risk.

Okay. The other quick one, you touched on the success of your resident rate strategy, and we've all seen that the RevPOR growth has either held steady or actually improved this year. That's worked out pretty well. Just regarding the rate strategy for 2021, you did mention in the prepared remarks that you'll monitor and respond to certain local market conditions when necessary. But I guess overall, should investors still expect the RevPOR to continue to grow year-over-year for Brookdale next year the way you see it right now?

So, the important thing to remember is for our in-place residents, we do rate increase on January 1 of each year. And so, normally you see that impact in our first quarter results. With regard to market rates, which are for new residents moving in, we continue to focus on the quality of our care and the services that we provide. However, in some cases, where appropriate because of local market conditions, we may respond to what we see in the market. So, net-net, I think there is more good news than bad news, but it's a pretty dynamic environment. Steve, do you want to add to that?

No, that sums it up. Our goal, Steve, is to maximize RevPAR, so that's profitable occupancy. It is not to chase occupancy. We do have pricing discipline, and like Cindy mentioned, in certain very competitive markets, we are adjusting some discounting to match those rates. But our focus is to win locally and really assess market-by-market community-by-community.

Okay. All right, appreciate the color. Thanks.

Thanks, Steve.

Mary, this is Kathy. Our other analysts that cover our company shared that our earnings call was at the same time as other companies. So, they might be late to the Q&A. Do you see anybody else in the queue?

There are no one else on the queue at this time.

Okay. Then, I think that we will follow up with them later, and thank you very much. Cindy, do you want to say last comments?

Certainly. I just want to thank everyone for joining the conference call today. We are very focused on the health and safety of our residents, our patients, our associates. I'm very proud of the fact that year-to-date we've conducted over 185,000 tests to keep our communities or help keep our communities as safe as possible. And there's no question that during the pandemic, we've taken swift and robust actions to strengthen our operations and our financial position, as well as to capitalize on the growing demand for senior housing which we are expecting. Nearly 1 million new potential residents a year are available starting in 2020. So, we are playing a game to maximize our financial flexibility in the short-term and prepare to win in the long-term. Thank you very much.

Ladies and gentlemen...

Go ahead.