Good morning. This is Kathy MacDonald. I’m very sorry for the technical delay. Thank you for joining us. And welcome to the Second Quarter 2021 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 our 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 our 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. Now I will turn the call over to Cindy.

Thank you, Kathy. Good morning to all of our shareholders, analysts and other participants. I hope that you and those you care about are safe and sound. Welcome to our second quarter 2021 earnings call. The COVID-19 pandemic continues to demonstrate Brookdale’s versatility and resilience, and those attributes are proving critical as we continue to win the recovery and help save lives. As the economy reopen and our entire industry is in a lease-up mode. We are operating in an intense and dynamic environment. We will continue to build on and refine our plans to position Brookdale for long-term success. We’ve made great progress this year to capitalize on the opportunities. I am pleased to report that we have delivered five consecutive months of occupancy growth. The June month end occupancy showed a significant step up, which led to an even stronger July occupancy results. The work has been hard and has placed tremendous demands on our associates. The tenacity of our team members at the communities with the diligence of our regional and corporate associates has helped protect the health and wellbeing of our residents throughout the pandemic and accelerated the COVID-19 vaccination process so that we can reopen our communities more quickly and with appropriate safety protocol. Thanks to our hard work. The initial phases of recovery occurred earlier than expected and we have been able to stay focused on achieving our growth objectives. As of July 1, we further strengthened our liquidity position by over $300 million when we completed the 80% fail and smooth transition of our home health, hospice and outpatient therapy business to HCA Healthcare. We are pleased with this value enhancing transaction and that high quality healthcare services continue to be available to our residents. Brookdale’s residents will benefit from a seamless offering…

Thank you, Cindy. There are three key takeaways related to our financial results. First, RevPAR growth improved on a sequential basis. We outpace the industry in occupancy growth, while maintaining RevPAR. Occupancy inflicted positive earlier in the year than we expected. This momentum is a good sign as we enter the third quarter, which historically delivers the strongest quarterly sequential occupancy growth. Consistent with our pricing strategy, we were able to maintain RevPAR on a sequential basis, while using targeted discounting in select competitive markets. Second, OpEx. With high resident vaccination rates and fewer COVID-19 cases in our communities and – versus the first quarter, we were able to significantly reduce COVID-19 costs, both on a year-over-year basis and sequential basis. As Cindy detailed, they intensely challenging labor environment, largely offset this benefit. Third, liquidity. With the completion of the sale of our healthcare services segment on July 1, we have incrementally strengthened our liquidity position. Now let me provide some context for these highlights, starting with occupancy. This is the first time occupancy grew every month in the quarter since 2019. Second quarter weighted average occupancy was 70.4% up 90 basis points from the first quarter on the same community basis. RevPAR or rates was 4.2% better on a year-over-year basis driven primarily by our annual price increase at the beginning of the year. On a sequential same community basis, we saw rate increase slightly. The annual increase and maintaining rate discipline that through the year helps us cover some of the extraordinary costs related to the pandemic. Turning to operating expenses. On the same community basis, the second quarter senior housing operating expense improved 6.1% year-over-year and was slightly favorable sequentially. The primary driver of the favoribility was a reduction of COVID-19 costs of approximately $45 million on…

Thank you, Steve. In summary, the completion of the HCA Healthcare transaction has strengthened our liquidity position, as we continue to have an ongoing interest in a growing home health and hospice business. Our senior living business has delivered five months of consecutive occupancy growth and in the second quarter, we outperformed the industry sequential occupancy growth. I remain optimistic as we enter the third quarter, which historically has been the highest occupancy growth period of a year. Over the past three years, including the recent healthcare services transaction, we have made significant transformational changes to reshape our business. We are in a better position to capture a larger share of the robust silver way of senior demographic demand and drive meaningful shareholder value. Operator, if you would open the line for questions. Thank you.

Thank you. [Operator Instructions] Your first question comes from the line of Josh Raskin from Nephron.

Hi, Josh.

Hi, good morning, not good evening. So good morning. So my question – I guess, firstly, I just want to follow-up on Steve’s comment, I heard the 2019 occupancy levels if we were returned, there would drive $300 million of additional NOI. Could you just help us understand what that means and what that’s relative to? Is that relative to the $30 million, $32 million run rate that we saw in the quarter or what exactly was that intended to say?

Good morning, Josh. That’s generally what the basis is. So kind of a run rate close to $500 million or so and then plus $300 million is $800 million ballpark.

Okay, okay. So actually what you’re saying, is it’s still $800 million. So you think that’s what the current situation, the pressures, et cetera. And I assume that means labor normalizes or something like that. My question, how should we think about the risk and I hate to be the downer on the party here. But how should we think about the risk of community closures and the potential for stopping move-ins? And maybe you could just remind us the metrics that the states were using last spring and what triggers sort of that decision for a state to act and stop move into. And then I don’t know if there’s any specific internal Brookdale rules that you guys have in place or rules of thumb, where you start thinking about community closures.

Sure. Josh. There’s no question that the Delta variant is challenging, but what’s different today than at the beginning of a pandemic is that we have added highly effective vaccine star strategy to help protect residents and associates. Throughout the pandemic, we’ve been able to demonstrate our ability to balance safety and engagement. And as a conclusion of over 2,000 vaccine clinics, 93% of our residents received the vaccine. So we are building on the steps that we’ve already taken with a vaccine requirement for our associates with limited exception. Given the widespread access to the vaccine, we’re in a much better position to handle the pandemic. Now what we see is that because of all of these things, even if there is a COVID-19 positive resident case, we have protocols in place in many cases to remain open to new move-ins. So I think that we’re monitoring it carefully, we have strong infection control protocol and we’re proceeding accordingly.

I guess, I mean, I was thinking more about when the state acts and says, because I think if you look back a year, year and a half ago, it was measurements of ventilators that were available, ICU bed capacity or even hospital occupancy levels and that sort of stuff. So I think some of it is kind of out of your hands, but it sounds like, and do you think even if Delta continues to rise, because of the vaccinations and the protocols you have in place. It sounds like you don’t envision a scenario where Brookdale communities are actually closing.

I’m not saying that we’ll never have a Brookdale community closed. I want to be clear about that, that’s possible. But what I’m saying is the risk profile is significantly different today, given the high vaccination rates of our associates and the fact that the vaccines are highly effective at preventing severe illness and hospitalization. So we’ll work with our local health department, of course, to make sure that we’re doing everything that we can to help protect our residents and associates. But what we have seen and what we’ve heard in the industry is that the health departments are comfortable with the safety protocols that we have. And they take that into consideration, when deciding whether a community needs to close or reopen. And that is different than a year ago, in the regard, that a year ago, the residents didn’t have access to the vaccine. And so that’s a very big change. And I think the health department appropriately recognizes that and we are continuing all of the safety protocols that we put in place during 2020 with hand washing and social distancing and masking. And now our continued focus on vaccines to really help keep our residents as safe as we can as well as our associates.

Perfect. Thanks.

Thank you.

Your next question comes from Tao Qiu, Stifel.

Good moring, Tao.

Hey, good morning. Thank you for having me on the call. Congrats on the new confusion of the vaccine clinics, which is very reassuring and like the spread of the Delta variants. My first question is regarding the 3Q outlook. I think, Steve, you mentioned sequential increase to a doubling of 3Q, what are you referring to occupancy operating income? I missed that part.

Yes. Before Steve answers, I’m going to just ask everybody on the call, I hope you’ve gotten vaccinated. I hope you’ve got your family vaccinated, your friends vaccinated. Together, we can really stop COVID, if we really focus on vaccination. Steve?

You bet. So Tao, I was talking about RevPAR sequential growth in the first and second quarter that was 1.7% RevPAR growth and as I mentioned, if I could nearly double and from the second quarter and the third quarter.

Got you. So the month-on-month acceleration in occupancy is impressive. Could you talk about the leading indicators you’re seeing right now that may have contributed to that improved outlook?

We are definitely seeing an increase in inquiries and leaves and visits as well as conversion. So all of those things are coming together to result and improvements and our move-ins on a sequential basis. So we feel like the environment is improving. We feel like our sales transformation efforts are gaining momentum. We think that the marketing investments that we’ve made are great and we are just so proud of the fact that our July occupancy in a single month built almost as much occupancy as the entire second quarter.

Got you. And the second part that was on the RevPAR, I think it came in more resilient than I had expected given the broader discounting environment with generally seeing right now, especially in the low acuity products. Could you maybe expand a little bit on your comment regarding dynamic pricing? How the factors driving the price decisions similarly different compared to apartments or logging?

Absolutely. We are proud of our RevPAR growth on a year-over-year basis and have maintain pricing discipline. We operate in 41 states. We’ve got a variety of community types and competitive environment is different in every single community. You know that our industry has more than 2,500 different operators. And so our pricing strategy has to be local and it has to reflect the occupancy of our communities, the competitive environment that we’re seeing, as well as our ability to move in as many residents as possible at the highest achievable rate. And so we’re constantly balancing the rates that we have in a local market, our discounting strategy, and looking to see whether changes in pricing would accelerate our RevPAR growth. And that’s something that I think the team is just very focused on.

So did you develop that dynamic pricing mechanism in house or are you using any third party products?

We are not using third-party products.

Hey, Tao, I wanted to give enough time for the other analysts so we can follow-up with you after the call.

Okay. Sounds good. I mean, just one last question from me, the $14 million equity earnings from consolidate investment, is that related to the sale off the [indiscernible]

I believe so. I’ll – I can’t comment on that. So your last remaining part of the JV, correct.

Okay. Sounds good. Thank you and congrats.

Thanks, Tao.

Your next question comes from Brian Tanquilut from Jefferies.

Hi, Brian.

Hey, good morning. Yes, first question, Cindy, just to clarify on the vaccination rates to Josh’s question earlier. So it looks like your residents are highly vaccinated in the 90% plus range. And then you said the majority of associates are, but are you putting out a mandate now on vaccination? And are you able to use that maybe from a marketing perspective? And then I guess the flip side of that, are you concerned that this could drive some increased employee turnover, if you are mandating vaccinations.

Yes. Our Northstar is the health and well-being of our residents and our associates. And we have been focused over, oh gosh, since before the vaccines were even available on education, about the importance of vaccines, we’ve made our vaccines readily available for our residents and associates, and our residents led the way. I mean, 93% resident vaccinations just incredible. We have seen a large majority of our associates get vaccinated, but we think with the spread of a Delta variant, it’s really time to take the next step and to require our associates to get vaccinated. Now, of course, there will be limited exceptions, including medical and sincerely held religious beliefs. And there are some jurisdictions where we cannot require our associates to get mandated, but we think it’s really important for the trust of our residents and their families. So we do think we’ll be talking about with prospects as to our communities. I hope that we don’t lose a single Brookdale associates, but I do recognize that not everyone is going to agree with the decision that we made to require vaccinations. And so we will be proactive about providing education to associates to understanding, where they’re coming from to working through the process on medical and religious accommodation. And if necessary, we will bring additional associates into the Brookdale family, because our objective is to have our community staff with full and part-time associates and we want them to be vaccinated.

I appreciate that. And then, I guess, on the cost side, Cindy, as we see Delta pick up, are you thinking of ramping up testing or preparing to ramp up the testing and ramp up PPE use just as the infection rates across the country are picking up right now.

Yes. We have masking requirements in our communities for our associates. And so that’s been in place since the beginning of the pandemic and there are state and local requirements as it relates to testing. Now that’s largely focused on vaccinated individuals. So to the extent that we are having an increasing percentage of our associates and residents vaccinated, those testing costs are not necessarily something that would increase as much. But of course it’s going to depend on whether we have a positive case in the community. And if so, that will involve more testing. But I feel like we’ve got the right strategy in place. We’re taking the appropriate steps to manage effectively through the pandemic with the prioritization of the health and wellbeing of our residents and associates. And quite honestly, if you think about our medical costs with our healthcare plans, the more of our associates that we get vaccinated that should help us over the longer-term as well. Do you want to add anything?

Sorry, go ahead.

Yes, Cindy. The COVID-related expenses from second quarter, third quarter, kind of pre-delta variant, we expect it to go down slightly. As Cindy mentioned, there’s – there are unknowns. So to the extent it doesn’t go down quite as much as it was in the projection – my projection is to be seen.

Thanks, Steve.

Got it. And then Steve, since I got you just last question for me, but we’ve gotten some questions about your 2023 maturity. So just wondering if you can make any comments on your debt refinancing strategy going forward.

You bet. So looking big picture, we strengthened our liquidity position by over $300 million on July 1 after closing the healthcare services transactional HCA. And we’re evaluating potential uses of that cash, such as de-leveraging some communities as we refinance their 2022 maturities, perhaps a small pay down of a higher interest rate debt or targeted investments to accelerate growth. We continue to focus on enhancing liquidity through occupancy growth and expense discipline. At the same time, we’re pursuing provider relief fund grants. So overall, cash flow and liquidity are a priority and we’ll continue to take proactive steps on the balance sheet while evaluating opportunities and executing that a core business.

Awesome. Thank you.

Thank you so much.

Okay. Your next question comes from Steve Valiquette from Barclays.

Hi Steven, how are you doing?

Great. Good morning, everybody. Thanks for taking the question here. This was touched on a little bit earlier, but just as far as the July occupancy trends pretty encouraging, but as we do dig in a little bit deeper on your geographic mix Texas, Florida, and California are the three largest states for Brookdale on number of units. Those states are seeing a lot of the new COVID cases where it’s most prevalent or at least in two of those three states for sure. Just I’m just curious as you analyze your own occupancy gains, are you seeing any correlation of better gains in states where there’s fewer new COVID cases and is it perhaps a little slower where the – those new cases are more prevalent by state. Any trends were calling out or is there really no correlation? Just curious to get some additional observations around that. Thanks.

Yes. Thanks for the question. I think we’ve seen the growth in COVID cases is largely among unvaccinated individuals and a much younger population than we thought during 2020. I don’t know that we have seen any correlation between increasing COVID trends and our occupancy trends. I think the important thing to remember is that we are a needs driven business. And so where we have seen the outperformance is really in our memory care communities in particular, their performance during the second quarter was absolutely phenomenal. And we’ve had a strategic focus there, which helps of course. And then what we’ve seen softness in is really independent living and that’s something I think is across the industry as well. But I don’t think it’s related to the surge in the delta variant.

Okay. So at the end of the day, it’s more related to product offering than any geographic mix. Okay. Just wanted to reinforce that. Thanks.

Thanks, Steven.

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

Good morning, Joanna

Hey, good morning. Thank you for taking the question here. So if I may just follow-up a couple of these things that have been discussed. So one is on the – on labor side, we see a lot of commentary from different providers thought pressure they’re equally highlighted you expect some continuation of this contract labor pressure at least in the near-term. So can you kind of confirm that what you see in the market and also how do you think about going forward? Do you think that once like you mentioned, do you saw supplemental benefits, unemployment benefits expired, and it’s going to be somewhat easier to still recruit and can you talk about any turnover – are you seeing well higher turnover? Are you seeing in different markets?

Yes, sure. I felt it was covered by the news. The labor market is fiercely competitive and we have increased our recruiting efforts to fill open positions. But when we had an opening, we do use overtime and contract labor as necessary. And of course, we actively adjust wages to remain competitive. Looking forward, we do expect that the labor market will improve gradually as people return to work after the supplemental unemployment benefits end and as schools reopen. So I think that’s important to note. So I think all of the things that you’ve talked about, yes, we see it, we have experienced it. We think it will continue into the third quarter, but we overarchingly believe that the labor market will return to more of a normal level in the not too distant future.

Okay. That’s helpful there. And I guess to that end, are you seeing – can I increase interest from applications and whatnot or inquires for jobs in senior housing? I don’t know. There are some – maybe some shifts interest people moving say from nursing homes or elsewhere higher acuity settings to senior housing, any of that it’s happening.

The quarter has been a little bit of a roller coaster, right. I think particularly early in the quarter, we didn’t see as much interest in our postings when there was an economic incentive to stay on unemployment and there were just massive increases in jobs available in the economy. I do think more recently we’ve seen increased interest in our postings. And so that’s something that we’re encouraged about. I think the one thing that our industry offers that few others do is that when an associate goes home after a day at Brookdale know that they’ve made a difference in someone’s life. Most employers can’t offer that. And so we really do attract a workforce that genuinely wants to make a difference and genuinely wants to be part of something bigger than themselves. And when you remove the barrier of supplemental unemployment benefits, moms who had their kids at home and aren’t in school, and some of the concerns around the COVID-19 variant that the vaccine helps solve, it’s much easier to operate a business.

Thank you. Appreciate it.

Thanks, Joanna.

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

Good morning, Frank.

Good morning. Most of might have been answered, but just a couple of random ones here, going back to the mandatory vaccine. I think you mentioned there’s some states where that would not be allowed. Do you – could you share with those – share with us what states those are that will not allow you to enforce mandatory vaccines for employers?

So Oregon comes to mind. There are a few states, but top of mind for me is Oregon. We can follow-up with the list with you separately.

Got you. Okay. And then I guess I would just be real curious from what you’re seeing out in the field, when you look at your competitors during this period where people are coming back out and move-ins are improving. Any change in their behavior regarding pricings or incentives and how do you think they will actually handle the surge in COVID and what do you think? Are you hearing the other providers out there or considering doing the mandates for vaccines as well?

Yes. I will say that the environment is pretty competitive and because we’ve got 2,500 competitors and many operates five or fewer communities. We see just about everything that you can imagine. Some of the things that we see quite honestly, we don’t think are sustainable. And so that is something that I think we’re taking the strategy that we think will yield the best results and the longest-term on a sustainable basis. And we’re really proud of the fact that we had such strong occupancy growth outperforming the industry in the second quarter while being able to maintain rate discipline. I do think that a number of people in our industry are going to move to a mandate, a vaccine mandate. And we’re seeing that already in healthcare overall, if you look at the statements that have come out from the American Physicians Association, the American Nurses Association, and all sorts of leading healthcare institutions, people recognize that vaccines are important and more and more healthcare system, hospital systems are taking that step to help protect their associates as well as their patients and residents.

Maybe last – one last one, just in terms of geographic markets, any particular areas where you’re seeing things getting better at a faster rate than average and then by the same token anything, any markets where it’s lagging. Thanks.

I don’t know that there is anything that I would say that just jumps out on a market basis. I think that what we tend to see is that our communities that have leadership teams that have been placed, tend to recover quickest. We know in particular at Brookdale, if an Executive Director has been with us two years or more, they tend to perform better. And so we’ve got about two-thirds I think 65% of our Executive Directors who’ve been with us for at least two years in our community. And that’s really where we see the fastest recovery. And of course, if you go back to our memory care communities, they are just performing incredibly well during the recovery. And so where we have a higher concentration of memory care communities, we are performing better. Okay. Are there any more questions operator?

I think that’s it. So thank you for your interest in Brookdale and joining us this morning. Operator, you can now close the call.

This concludes today’s conference. You may now disconnect.