Welcome to the 8:10 A.M. session at Citi's 2025 Global Property CEO Conference. I'm Michael Griffin with Citi Research, and we're pleased to have with us Brookdale and CEO Cindy Baier. This session is for Citi clients only, and disclosures have been made available at the corporate access desk. To ask a question, you can raise your hand or go to liveqa.com and enter code GPC25 to submit questions. Cindy, I'll turn it over to you to introduce Brookdale and the team, provide any opening remarks, tell the audience the top reasons an investor should buy your stock today, and then we'll get into Q&A.
Great. Michael, thank you so much for having us. Jessica Hazel, our Head of Investor Relations, and I are so grateful to be here today. My name is Cindy Baier. I'm the President and CEO of Brookdale Senior Living, and it is just a fabulous time to think about investing in Brookdale today. Let me start by saying that Brookdale is the premier operator of senior living communities, and we are entering an unprecedented period where we have great demographic growth from the aging population at the same time that we have very constrained inventory growth. They're at near record lows. In fact, construction starts haven't been this low since the Great Recession.
The senior living industry is poised for outsized growth, and as a pure play in senior living, unlike others, we don't have to worry about that growth rate being diluted by other businesses that have a slower growth potential. The second reason that it's important to invest in Brookdale Senior Living is that we've been very focused on profitable and sustainable growth, and this is very important for our future. If you look at our 2024 RevPAR, our RevPAR, our revenue per available unit, was 18% higher than in 2019. If you look at our operating income per available unit, it was 8% better than 2019. These results fully reflect the fact that we have a number of units that still aren't in service for residents.
We have more than recovered our pre-pandemic profitability per unit, and we have much more opportunity for growth than others because of where our occupancy is and because we have so many units that aren't in service serving residents today. As those units become occupied, it's going to drive higher RevPAR and higher profitability for the company. The third reason that it's a good time to invest in Brookdale Senior Living is that we have industry-leading clinical expertise, and we have a greater concentration of assisted living and memory care in an increasingly needs-based environment. The fourth reason is that 94% of our revenue is private pay, and what this means is that we aren't as exposed to changes in either Medicaid or Medicare funding levels. If you wrap it up, our value as a company is underpinned by the real estate that we own.
By year-end, we expect to own more than 75% of our consolidated unit count. That gives a lot of value opportunity.
Great. Thank you for that overview. Maybe we'll just start with the fundamentals you're seeing in your business. As you touched on, the portfolio continues to recover both in terms of occupancy and rent growth. How confident are you in the strength of this recovery? What is the outlook ahead for 2025?
I'm very confident in the recovery, and I think that this is a supply-demand environment that we have been waiting for many, many years to come. We believe that the supply and demand will provide a meaningful tailwind to senior living for many years to come. There's significant opportunity for us to both grow occupancy and rate. Our approach really has been to prioritize growth that balances profitability from our occupancy increases. Our actual rate balances affordability for our residents with the costs that are necessary to provide high-quality services, including providing a return on the capital that's required to operate our communities. If you look at our annual pricing increases and our annual occupancy growth, sometimes you're going to grow rate more, sometimes you're going to grow occupancy more.
We expect that there are going to be years where there'll be larger price increases, like 2023, and years that there will be smaller price increases, like 2025. It is important to note that our price increase in 2025 is still higher than our pre-pandemic average increases were.
Have you noticed, just given the strong occupancy recovery and I think overall the sector is above pre-pandemic occupancies, that seasonality has become more in effect? I mean, typically we see that in the 1st quarter data. You guys report your monthly stats. It still seems strong from an occupancy perspective. Are you seeing any seasonality aspect before we get into that key selling season in the spring?
Yeah, our industry is definitely affected by seasonality. If you look at our investor deck, we put together a page that shows what the normal seasonality would be. I'm very pleased to report that in January, and that has continued into February as well, we are outperforming our normal seasonality. Usually what you see is in the 1st quarter of the year, you have more move-outs than you do in other parts of the year. As you get into the summer selling season, you see your number of move-ins increase. Normally you build occupancy sort of in that 2nd quarter and 3rd quarter, and you lose occupancy in the 1st quarter. That is normally what you would expect. We are very pleased with the start that we have to the year and looking forward to the rest of the year.
I believe your portfolio is concentrated more so in assisted living and memory care versus independent living. Why does this higher acuity setting make sense either from a pricing or growth opportunity perspective relative to IL?
You know, what I would say is that seniors face so many difficulties as they age. They have a greater need for long-term care because of chronic conditions. There is a dramatic decline that we've seen over the past decade in the number of seniors compared to caregivers. If you think about seniors being lonely, the loneliness epidemic is real, and it affects both the seniors' physical health as well as their mental health. That makes needs-based offerings so important. Now, Brookdale's portfolio has 70% of the portfolio that is need-based. That's compared to approximately 50% for the industry. We believe this is even more critical given the diverse needs of the population. Now, Brookdale has differentiated itself through its clinical programs, including programs like Brookdale Health Plus.
That allows us to deliver both current and future residents with enhanced quality care and services in a highly effective and value-added way. Because we have such a high concentration of assisted living and memory care, it's important to note that an assisted living resident moves in about two years later. They're two years older than an independent living resident. That's an important differentiation. It's also important to know that we've intentionally grown the concentration of our portfolio in assisted living and memory care, and it's 10 percentage points higher today than it was in 2017. We're doing that to better match the needs of the population. Our job at Brookdale is really to capture the opportunity by better serving our residents and also to provide an attractive return for our shareholders.
I think another big focus just on the industry overall is labor availability and demand and expense control. Maybe can you talk about what you're seeing on the ground at your facilities, either from wages, expenses, how best are your teams able to mitigate costs, and how do you see that trending in the year ahead?
You know, I'm really grateful that the labor market has continued to improve. Probably the most difficult labor market for us was in 2021. Every year since then, we have delivered improvements in both retention and turnover. In each of the last seven quarters, we have year-over-year improvement in our trailing 12-month associate turnover, and that supported more than 13 percentage points of improvement in 2024 compared to 2023. The reason that this is so important is that our associates naturally become more productive as they are with us longer. It's also really important that the associates build relationships with the residents that they're serving. In every quarter of 2024, we delivered favorable labor results as a percent of revenue.
At the same time, we improved our resident satisfaction that allowed us to stay focused on providing high-quality care for our residents, meeting residents' needs, and maintaining compliance with regulatory requirements. If I look at our contract labor in 2024, we were back to our pre-pandemic inflation-adjusted levels. I'll say that with a difficult flu season in January, and whenever you have anything circulating, whether it's flu or COVID or respiratory viruses, you may have communities that need to use contract labor from time to time because you can't have associates in your communities if they could potentially expose a resident to a virus.
Can you maybe give us a sense of what your customer acquisition strategy is, and how do you effectively market to target your customer base?
The best thing that you can do for a customer acquisition strategy is to delight your existing residents. That is why we are so focused on our net promoter score for our existing residents. We have that included in our bonus plans. What we want to do is we want to have residents who are happy with us because we help them better manage their clinical needs and the loneliness that they face amongst a community of friends. We do that through programs like Brookdale Health Plus, which I mentioned earlier, and Brookdale Engagement Plus. The most important part of what we do is delighting our existing customers. For this reason, the thing that I am really proud of is that U.S. News & World Report every year recognizes best-of senior living companies.
In 2024, for the third year in a row, we had more best-of senior living communities than any other operator in the business. At the same time, you want to make sure that you're attracting new customers to your business. We have a very talented marketing team that has created a website that highlights our community capabilities as well as what differentiates them from the competition. We use digital marketing, we use social media, we use direct mail to introduce our capabilities to new prospects. Our sales team helps build relationships with professional referral sources and other community leaders. They engage with prospects and their families to understand what's getting harder for the senior and their family and to see if we can help.
We had a question come in. This is kind of back to the seasonality point. Have you noticed, just given the kind of infection mitigation protocols we've seen during COVID, that there's been a step function lower in the negative seasonality impact as a result of these protocols? We've had a pretty bad flu season this year, and it doesn't seem to have impacted occupancy as much.
I am incredibly proud of our team. Brookdale has always been a leader in clinical capabilities, and we have been doing vaccine clinics since well before COVID-19 hit. That is something that our population of residents values very much. We have a very high percentage of our residents who choose to get vaccinated for the flu. At the same time, what COVID-19 taught us really is the importance of making sure that your communities are clean and sanitized, and if someone is experiencing symptoms, that they are isolated. What I will say is that we have had great experience during this flu season, despite this being one of the worst flu seasons in 15 years in the metropolitan areas that we operate. That has been fabulous. I will say that we have not had a single flu closure this whole season.
I will say that as a result of that, what we said in our call was that January was a very strong month relative to seasonality. That continued into February. I will say also that one of the things that supported the seasonality benefit was our 4th quarter move-ins were incredibly strong. That sort of 4th quarter occupancy pulls into the 1st quarter occupancy.
We've had a couple of questions come in just related to a transaction you had with a REIT that's at this conference. Just the rationale about the change in the renewal agreement with the Ventas lease and the subsequent deal, which Ventas is transitioning operators. How do you see this versus the properties that you continue to lease? Are you going to invest your capital in some of those properties?
Our new lease with Ventas solved Brookdale's largest capital structure issue since I've been with the company. As we mentioned before we renegotiated the lease, we were losing more than $30 million a year on that lease. What we needed to do is we needed to have a lease that provided Brookdale with the opportunity to operate high-quality assets for a reasonable rent, right? If we're going to lease a property, we want to make sure for our shareholders that we can generate positive cash flow from that. We renewed roughly half of the lease, I guess is the way that I would say it. The properties that we are renewing are strong properties. They have higher RevPAR, better performance than the rest of the properties.
We will transition 44 properties, 45 properties to Ventas by the end of the year, and they will sell about 11 properties between now and the end of the year. What that will do for us is it will have a portfolio that we want to operate, that we can continue to invest in those properties, and we will work very hard to make sure that the transition has as little disruption as possible for our residents, for our associates, and for our shareholders.
I think on that cash flow point, I think the expectation for you is to generate positive free cash flow in 2025. What does this signal for the recovery in the business? What would you expect to use that positive free cash flow generation towards?
Yeah, I will say that I'm really proud of the progress that we've made on our adjusted free cash flow. We are expecting to generate meaningful adjusted free cash flow in 2025. If you look back, you'll see that in 2023, we increased our cash flow 75%. In 2024, we increased our cash flow by about 40%. In 2025, we'll have another step forward. That does not mean that every single quarter we will have positive cash flow, because there is seasonality to cash flows, just like there's seasonality to the business. In particular, there are some significant cash outflows in the 1st quarter. What I will say is we will continue to invest our resources to demonstrate the right return for our shareholders.
I do think that the investments that we're making in our existing communities, in our associates, and our resident experience are going to be important. Not this year necessarily, but as you look to the future, I think that I'd love to see us have some density in more markets, additional density. I'd love to continue positioning our communities so that we're going to be able to win, and we will continue to win in those communities.
I think to that end, maybe switching to kind of the transaction activity in the market, you announced the closing of a number of real estate acquisitions recently with some landlords. Why did this make sense for Brookdale to acquire these facilities? Would you expect longer term to try to acquire all the real estate, or would you still expect to lease some from existing landlords?
The transactions that we announced and the two that we just completed last week are really great transactions for the Brookdale shareholders. If you think about why they make so much sense, it is if you have a lease, it is a high and escalating cost of capital. At the end of the lease, basically all the value you've created transitions to the owner of the asset, not to the operator. You have to share the value that you create with the person who owns the real estate. We were able to acquire some very good assets, and we're able to do that at a lower fixed cost structure. You are basically able to have almost a guaranteed return from the day you buy the assets.
At the same time, you do not have to worry about a misalignment of interest between the capital partner and the owner of the real estate. You can invest in the property knowing that you will operate it and knowing that you will be able to benefit from all the investments you make, not just CapEx investments, but in the people, the associates, and the residents. For that reason, they are just absolutely great transactions. We are really proud of the assets, in particular the Welltower assets that we acquired. These are very high-quality assets. They are located in affluent or very affluent markets. It is about 270 independent living units, 170 assisted living units, and 132 memory care units. If I move to the DHC portfolio, that was 25 communities.
These communities have certain communities that are well above our company average, and it has other communities that we may ultimately transition to other operators.
To that, we had a question kind of come in over that. Given the increase in real estate ownership, would you ever look to either spin off the real estate into a REIT or convert to a REIT from a C-corp?
As a management team, our primary obligation is to our shareholders, and we're going to do whatever makes sense for our shareholders. Having said that, when we've historically looked at this, it just hasn't made sense as a value creation opportunity.
You know, I think a big, oh, sorry, question down there.
Just that last point on the DHC assets, would you keep owning the real estate and have a third-party operator?
No, we would. There are some communities that are very small communities in that portfolio. The portfolio has some communities that only have like 19 units in it. We may actually sell some of those really small communities. Yes. I'm sorry if I was confusing. Thank you for asking the clarifying question.
I had a question. If you were to look at your, and I may be less familiar with some of your EBITDA guidance, if you had all the real estate transactions, what would sort of the run rate look like going forward?
Could you repeat the question?
Some of the transactions are later in the year. The lease structure up. If you took your EBITDA and you run rated it for all those transactions, what would that look like?
Oh, I see. In the 4th quarter, we have expected that the adjusted EBITDA will be relatively neutral for the transition of the Ventas assets. The guidance that we do have reflected the fact that we expected to close the transactions that we just closed last week. What I would say from an adjusted EBITDA standpoint, our adjusted EBITDA guidance is really based on making sure that we have guidance that reflects both the move-ins and move-outs that we have historically generated and that we're capable of, as well as strong cost control. There may be a little bit of noise in the 4th quarter in particular as you look at communities exiting our portfolio. We're going to take a little bit of time to make sure that our infrastructure is appropriately matched to the communities that we're operating going forward.
I think we're expecting it to be roughly adjusted EBITDA neutral in the 4th quarter.
Maybe just following up on that line of questioning on the announcements that you had yesterday, you also included some financing transactions, debt capital providers. Are you seeing this as an opportunity to grow? Is this more opportunistic with these deals, or could we see you do kind of subsequent transactions like this?
You know, if you look back, we have entered into transactions with every single one of our large capital providers. If you look over the next several years, I think we only have four communities that have leases that are coming up. I feel really good about the fact that we have done some really significant transactions. I'm not suggesting that we won't do more, but the opportunities aren't as front and center as they were in the last 12 months-18 months. I think that if there's ever a transaction that we can do that's good for our shareholders, we're always looking for win-wins. Sometimes what you find is that if you've got a partner, whether it's a lease partner or someone else, you'll periodically talk about things that could be good for both of you.
If the opportunity arises for something that's good for both of us and for our shareholders, then of course we would be looking at it.
I think another big topic that people are looking at in the senior housing space is just supply. The expectation is for it to remain muted for the near to medium term. Are you seeing anything in your markets or opportunities where supply might pick up or construction costs just still prohibitive to make the math pencil?
If I look at Brookdale and I look at the industry, I think it is incredibly difficult to have new supply pencil out, particularly at your price points. If you look at the transactions that we just did, we bought the assets at a discount to replacement value. It is really hard, and it takes a really long period of time to build a new community. If I look at the next several years, I think we are going to be very well positioned as it relates to supply and demand. If you think about the aging and accelerated demographic growth, and then you think about the supply being so constrained and new construction starts at the lowest level since the Great Recession, that is going to continue for a while.
If you think about just the tariffs that were recently announced, that's only going to increase the cost of construction, which puts a further moat around our properties. I would expect us to have many, many years of occupancy and rate growth, which should drive better profitability for our company and for our shareholders.
Is there a worry that either the tariffs or maybe changes in immigration policy could impact Brookdale's portfolio operations?
What I'll say is that most of our costs are labor costs. About 65% of our cost base are the people that serve our residents. Our real estate costs, whether it's lease or interest costs, are the next significant portion of the cost. We do have costs that could potentially be impacted, but they are the smallest part of our cost base. We've been in contact with our procurement team and our suppliers, and we'll take steps to mitigate the impact as much as possible. To the extent that there is an impact, we'll take that into consideration for the selling rates that we have during the year. Next year in January, when we do the resident rate increase, we would take that into consideration.
As it relates to immigration, we make sure that the associates that we hire are eligible to work in the United States. We have a whole process that goes through how you validate that and ensure that the people are able to work. What I do think is that there is going to be an impact in construction in particular, right? I think about that and the fact that that will increase the difficulty of having new construction, which is good for us. I think that the immigration should be more of a positive than a negative.
Got a couple of questions coming here. First one, I think you mentioned rental rate increases. What are you seeing in terms of anniversaries and the rate increases within your portfolio for existing residents?
We normally do our in-place resident rate increases on January 1st. Now, that does not necessarily apply to Medicaid or Medicare. Our rate increase in 2025 was lower than 2024, but higher than sort of the pre-pandemic rate increase. I think that has been something that appropriately balances affordability for residents with the cost of providing high-quality services.
You mentioned the Health Plus program. I was wondering if you could just expand on a little bit of this and the value offering that Brookdale offers.
I couldn't be more excited about Health Plus. Today we have Health Plus in 129 communities. If you think about what we're really trying to accomplish, we're trying to help our residents live a better, healthier life for longer. Last year and for three years straight now, we have an independent third party that compares the outcomes of our residents who are in a Brookdale Health Plus community to similar residents with similar chronic conditions that live outside of the Health Plus communities. The results are again incredible. We found that 80% fewer urgent care or emergency room visits and 66% fewer hospitalizations. That is something that for the residents who live with us is truly impactful on their quality of life.
If you think about not just the positive resident outcomes, but the impact that it has on the rest of Brookdale, we are seeing that it has a positive impact on our operational results and our resident satisfaction ratings as well. We do expect to roll Health Plus out to about 60 additional communities in 2025. The Health Plus rollout will be to assisted living communities. We do not offer Health Plus in independent living communities. The reason that we do not offer it in independent living communities is because it is a clinical program, and independent living does not have clinical included in it.
Maybe following up on that, how do you think the trend to value-based care or aging in place at home could impact Brookdale?
I'm really excited about the change to value-based care and care at home. The reason that I'm excited is because it allows seniors to receive more care where they live. That includes the Brookdale communities that they call home. Over the last several years, Brookdale has truly strengthened its healthcare leadership, and we are well positioned to play a critical role in the healthcare continuum. Our value-based care approach, like Brookdale Health Plus, addresses these concerns by having our in-case managers who help our residents ensure that they're getting preventative care. They are managing their chronic conditions. It streamlines the care transition planning. It also provides support to not just the resident, but also their family through education and engagement. We do a lot of tracking as it relates to clinical outcomes.
If you are a value-based provider, you should want your patient or your member to live in a Brookdale community. The reason that you should want that is because you're going to have lower costs, because emergency room visits, hospitalizations are very expensive. If you think about Brookdale Health Plus, 80% fewer emergency room visits for a similar resident and 66% fewer hospitalizations. I can't think of another operator who can demonstrate the high quality that their clinical programs have on their residents, particularly anyone of scale.
Another one came in. What is the average RevPOR within your portfolio currently?
We really focus on RevPAR as opposed to RevPOR. As I've mentioned, we have made great progress on increasing our RevPAR and also our operating income per available unit. RevPAUR will vary based on the mix of the portfolio, whether it's independent living or skilled nursing. That bounces around from quarter to quarter.
I think you touched on a little bit in your prepared remarks that the potential changes in government payer sources would not directly impact the majority of Brookdale's business. Are there any regulatory issues or maybe things coming up in Washington that we should just kind of be cognizant of for the industry?
Yeah. What I will say is I'm very grateful for the support that we have received from the government. If there's one thing that I'm grateful for from the pandemic, it is that it really highlighted the critically important role that senior housing plays in the nation's overall healthcare system. We have spent a lot of time educating policymakers, educating HHS during the pandemic about our industry, and we'll continue to do so. I think it's part of our role as the largest operator in the industry. We will be proactive in terms of trying to shape any federal regulation to make sure it's right for seniors and workable for our industry. Given the outcome of the recent election, we expect less regulatory activity than there might have been in the near term. We do not expect any near-term movement for federal regulation of our industry.
We also are hopeful that certain proposals that may be less attractive for our industry could be rolled back.
We had a question come in just kind of relating to some of the operating fundamentals in your portfolio versus some of the publicly traded REITs. How should we interpret kind of whether it's a lower level of same-store NOI or occupancy or operating margins versus the shop portfolio of the publicly traded REITs?
It's a really good question. I think the answer isn't a single-year answer, but I think it's a multi-year answer. There are really two paths that you could take to recovering from the pandemic. You could take a path of occupancy for occupancy's sake, or you could take a path of cash flow recovery. Basically, our view at Brookdale is that we want to generate positive, sustainable improvements in cash flow, which I said earlier, I was so proud of the fact that two years ago we improved our adjusted free cash flow by 75%, almost 40% last year. We have more than recovered our same-store NOI, 8% higher than sort of 2019. I will say that we took a very large rate increase in 2023. I think the REITs took that increase sort of in 2024.
There's a little bit of apples and oranges in terms of looking at just the last year. I think that we are incredibly proud of the recovery that we've had in the per-unit profitability. I'm not sure that others can say that. Happy with where we are. We do have a higher concentration in assisted living and memory care that has a lower margin rate, but it also has a higher margin dollar per resident. Also, the fact that their portfolios are lower acuity products. As I mentioned in our portfolio, we basically have an assisted living resident that moves in about two years or nearly two years later in their age than the independent living. I do think they're skewed to lower acuity products.
I think that will finish with a couple of rapid-fire questions. First one, what is your expectation for same-store NOI growth for the shop industry overall, so not Brookdale specifically, in 2026?
I think the industry is going to have a great year in 2026. Very favorable.
Will there be more, fewer, or the same number of publicly traded senior housing operators a year from now?
I'm going to say the same.
Wonderful. Thank you so much.
Thank you.