Q2 2020 Brookdale Senior Living Inc Earnings Call
My name is turned around and I will be our conference operator today at this time I would like to welcome everyone to the Burke feels senior leaving second quarter earnings release call. All participants are in listen only mode. I forget speakers presentation. There will be a question and answer session to ask a question.
Injuring the fashion you will need to press star one on your telephone as a reminder, this conference will be recorded for replay purposes, I wouldn't know market vertical over to copy Mcdonald of Investor Relations.
Please go ahead.
Thank you and good morning, everyone I'd like to welcome you to the second quarter 2020 earnings calls for Brookdale senior living joining us today are Cindy buyer, 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 that the federal securities laws.
These statements are made as of today's date, and we expressed sleep disclaim any obligation to update these statements in the future.
Actual results or performance may differ materially from forward looking statements certain of these factors that could cause actual results to differ are detailed in the earnings release, we issued yesterday.
What was in the reports we filed with the FCC 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.
So please note that during this call we will present non-GAAP financial measure.
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 out brookdale dot com forward slash investor and was furnished on an 8-K yesterday, but that I would like to turn the call ever to Cindy.
Thank you Kathy good morning to all of our shareholders analysts and other participants welcome to our second quarter earnings call.
I want to start by saying, Thank you, everyone, who is making a difference to fight 'cause it 19.
Those on the frontline fighting to protect and save lives.
The researchers working on vaccines and to each of you make a difference by doing your part against the greatest public health emergency in the past century.
This includes our inspiring associates, who continue to work tirelessly to help ensure the health and wellbeing of our residents and patients.
Before I talk about our operations I want to discuss the most significant transaction, we completed since the beginning of our turnaround.
In July we completed a new multipart transaction with our largest landlord ventanas.
We believe this transaction is a positive outcome for us reducing our future lease payment by approximately $500 million over the remaining lease period through 2025.
Lowering our debt and improving our cash flow.
Prior to the Ventas transaction, we built liquidity and enabled us to make an upfront payment within approximately one year cashflow payback.
We believe this transaction improved Brookdale financial foundation during an unprecedented time and better positions us to create long term value for our shareholders.
Turning to operations Brookdale top priority remains helping to protect the health and wellbeing of our residents patients and associates and we will not let up on this diligence throughout this global pandemic Brookdale has provided essential and high quality care and services and we will.
Continue to do so.
Our commitment to health and wellbeing has required personal sacrifices that work on imaginable, just a few short months ago and yet we continue to find inspiration and successes in our operations. The three I'd like to highlight our robust testing.
Increased resident and family engagement and incorporating incremental innovation.
I will start with her covert 19 baseline testing.
With research showing up to 45% all individuals who are infected with covert 19, our asymptomatic and given the ability of asymptomatic individuals to transmit the virus unknowingly we proactively commenced a nationwide resident and associate testing program.
We completed baseline testing of residents and associates and all of our communities across 44 state.
In addition to following regulatory requirements. We've asked all residents and community based associates to be tested so that we can identify and quarantine any asymptomatic individuals to help prevent the spread of the virus.
Year to date, we've performed over 100000 test.
This is helping our extensive efforts to identify asymptomatic individuals and help contain covert 19, and this tireless work from our Brookdale everyday heroes helped contribute to a low percentage of residents who contracted the virus.
As of the end of July less than 1% of our residents currently have cope with 19 positive results.
I want to recognize the great work that occurred at our communities, resulting in many great outcomes.
Fine testing at all our communities allows us to learn as well have to minimize the duration and impact a community experiences with the Cobank 19 exposure.
One of the Pleasant surprises, we experienced with all those residents who tested positive for coping 19, many pass through the full exposure period without becoming symptomatic.
With our comprehensive testing the would not have even know they were positive.
Identifying individuals who are cobot 19 positive made it possible to implement our quarantine protocols for those infected rather than and to restrict cobot 19 positive associates from working in our communities and serving or patients.
Koeppen 19 is ever evolving and we're still learning every day, we will continue to meet state and local public health officials testing direct is an incrementally we have built plans to conduct additional testing in certain circumstances.
Turning now to our second operational success.
Brookdale is focused on leading the way forward with 85% of our communities currently accepting move in.
The remaining communities are working with prospects and are creating connections with potential residents. So they will be able to welcome new seniors when appropriate.
We have increased the amount of communications and expanded our use of technology with our residents to connect them with their family and friends through.
Throughout the pandemic, we made a tremendous effort to connect residents with loved ones through window with it.
Car parades and technology to create virtual birthday and anniversary celebration.
We have even connected our residents at different brookdale communities to each other direct connections across America virtual program.
More recently, we've begun to welcome visitors at some of our communities were allowed by state and local guidance.
In person connection is very important to combating loneliness, an isolation faced by many seniors and amplify during this pandemic and we know how much our resident want to see their loved ones face to face.
Having completed baseline testing is one critical element that helped us move forward responsibly into a new stage of our cope with 19 response.
In advance of local communities welcoming visitors, we developed a comprehensive easing of restrictions plan to address numerous safety guidelines, which incorporates applicable government requirements.
Given the continuing covert 19 trends our focus remains on helping protect our residents and associates.
At a high level the easing of restriction plan requires first the licensing and regulatory agency for the community to support reopening stops applicable.
Second community why testing associates and residents is complete with no current cobot 19 positive results. In addition, we must follow applicable different state and local guy.
And third when those criteria are met our community prepared and communicate and appropriate social distancing plan for various areas of the community that may include but not be limited to loved one visits.
You know staggered dining and resident engagement.
Apartment visits by prospective residents and enhanced offerings, such as Salon Fitness Center library et cetera.
It's important to note that we modify these requirements as necessary to ensure compliance with ever changing regulatory or executive order requirements and consideration of health official guidance.
All of our precautions, our support the health as well emotional wellbeing of our residents and our associates.
My final operational highlight is about continuing innovation.
Brookdale have taken a cautious.
Clinical and environmental approach to cope with 19 since the beginning last quarter I highlighted the based on research by our clinical team our company with an early adopter of taking pulse oximeter reading of our assisted living and memory care residents.
Recently, our clinical infection control experts identified an over the counter product to incorporate into our prevention strategy for memory care residents.
Dementia can cause unique challenges with our memory care residents' ability to remember to maintain social distancing wear masks and frequently wash their hands.
Our associates can apply this lotion like product to the memory care resident space and hand, several times a day.
We believe this hypo allergenic product supports the anti microbial barrier of the skin.
We're pleased to offer this new measure and added to our existing protocol, while continuing to monitor and assess the impact unresolved.
Now, let's turn to the financial performance of our operations for the second quarter.
I will focus my comments on same community resolved.
As expected cope with 19 continues to have a significant impact on our performance, including closing our communities as necessary to visitors and move ins to better protect our residents.
Revpar on a same community basis was 3.5% lower compared to the second quarter 2019, and rough poor on a same community basis was 2.3% higher on a year over year basis.
Our focus continues to be charging a fair price for high quality care.
Move ins were lower on a year over year basis, but we saw improvement as we progressed through the second quarter.
April move ins were approximately 65% lower on a year over year basis, well by June the year over year rate of decline was cut by nearly one.
With June muezzins around 35% lower than a year ago.
This demonstrates great progress thanks to our sales and feel teams efforts.
They are continuing their strong effort in the face of new U.S. hot spot resurgence.
Brookdales quality of service and our teams hyper local points a difference, including our neighborhood. Welcome effort has resulted in thousands of seniors joining brookdale communities during the pandemic.
We made key enhancements within our connection center operations right, even more support to our community.
Whether handling calls or web forms from our marketing investment. This team was able to schedule virtual visits for prospects on behalf of our communities.
What's clear is that we've been able to meet the demand from prospects, who are still exploring senior living options from the convenience of their homes as well as in person visit when guidelines allow.
Our operational teams care for our resident has resulted in favorable control them move out results for the second quarter compared to the prior year.
We believe residents were less likely to move in in the heat of the crisis and United to protect themselves and others.
As the world begins to learn to live with the risk of Cobot 19, we believe that our move in and move out will return to more normal level.
The net impact of our same community move in and move out with a 430 basis point sequential occupancy decline with each month of the quarter showing significant sequential move in improvement.
For senior housing in the first half of 2020, we accepted approximately $10 million a federal grants related to the skilled nursing portion of our business.
In July we apply for additional grants to the provider release on Medicaid and chip allocation.
The largest senior housing operator, Brookdale played a leadership role and emphasizing to H S. The administration and congressional members importance of providing financial release to the senior housing industry to help protect our nation seniors against cope with 19.
Hi, along with others in our industry have invested in a significant amount of time, explaining the critically important role that senior living is playing on the front line of a battle against to cope with 19 as well as the economics involved.
Let me now turn to our health care services, starting with our home health business.
Lower occupancy in our communities combined with the acute care health systems that shut down or severely limited all elective procedures and limited access to care had a negative impact on her home health revenue, but we are starting to rebuild our census in the first quarter, our associates started educating patients.
And referral sources about our strong screening and protocols in order to continue to provide vital surfaces.
Given our focus on quality, we're excited to see that 94% of our agencies had forestar or greater ratings by June.
This quality focus we are reducing the sequential decline in census in fact by the end of June we had built census back to January levels.
Our hospice business delivered 3% revenue growth compared to the prior year quarter and sequentially.
We're pleased with the recent government funding to support the home health Hospice industries.
Through the end of the second quarter, we recognize $17 million of ground as other operating income in our health care services segment.
Before I turn the call over to Steve I will address our outlook.
The recent elevation in the U.S. Corona virus growth rate in the south and southwest it's too early to speak definitively about exactly when our business will return to a new normal.
At its core our business is essential and primarily needs based.
Our low percentage of positive cobot cases highlight our competitive advantage a quality care for our residents and patients. This news resonates with our lead sources, along with providing our sales associates facts to back up our strong messages.
As I've mentioned last quarter with our national scale and quality focused offerings. This crisis, our opportunity to lead and we're doing just that.
Brookdale associates are United in leading the way forward rising to this corona virus challenge by being nimble and reinventing their roles to provide memorable resident experiences we made great progress through the second quarter and we focused on the actions that will help us overcome our short term challenges and Korea.
As a business that can capitalize on the opportunities ahead with that I'll turn the call over to Steve for a more detailed update on our financial performance and outlook.
Thanks, Andy.
I'll start with a comment on reporting we made the decision to include covert 19 related income and expenses within all results.
To make the impact of the pandemic clear we added a summary page in the supplemental deck to provide cobot nineteens financial impacts by segment and by financial line.
Now I'll go through a few financial highlights.
In senior housing the month over month occupancy declines slowed as we progressed through the second quarter. However, as new Koeppen 19 hot spots in the U.S. increased in July our month over month occupancy trend installed due to move outs returning to a normal level.
Since April we saw sequential progress in the healthcare services segment home health revenue decline has slowed and hospice revenue returned to growth in the second quarter.
Our June thirtyth liquidity improved to $600 million.
Even with the expected uses of cash we're comfortable with our liquidity position.
And our recently announced transaction with the Ventas also improved our capital structure by significantly increasing our lease coverage on long term cash flow, eliminating all financial covenants from the ventas arrangements and monetizing assets at an attractive valuation.
Let me provide more color related to covert 19 on a reported basis as summarized on page four of the supplemental.
We included a line for estimated lost revenue to provide a perspective of the Corona virus impact.
To provide further transparency, we're recognizing government grants on the other operating income line as we satisfy the conditions of the grants.
In the second quarter, we recognized $27 million of grants income the majority of the grants were related to our Medicare business, which is largely in our health care services segment and a small skilled nursing section in senior housing.
Brookdale and the trade associations continue to advocate for the senior housing industry to be prioritized for future government financial relief.
Turning to cope with 19 costs year to date, we spent $71 million to fight this pandemic.
Of these costs over 60% was for P.B. and medical supplies to help keep associates and residents safe in our communities.
The second quarter covert 19 expense was $61 million, which is 8% of the quarters senior housing and health care services revenue.
As new hot spots occurred we bore increased costs such as a labor. We have also seen an increase in self insured medical costs associated with our employee population.
While these costs were higher than our initial expectations, we have been able to build a stock a P.P. supplies that we expect will last several months, we understand the importance of PPV and want to ensure that our associates and residents are appropriately protected.
The baseline testing costs incurred by Brookdale in the second quarter were about a million dollars for residents Medicare or private insurance generally covers at least one test for associates because they are essential workers, many state and local health departments, along with the National Guard assisted with the initial testing.
Based on our current understanding of testing reimbursement, we believe that we will likely need to bear the expense of incremental associate testing unless government resources are made available.
Working capital improved to $139 million of which 119 million was related to the cares Act.
We received $85 million of Medicare advance payments, we expect this benefit will reverse in the second half of 2020.
As of June we also benefited from at $27 million on payments deferred under the payroll tax deferral program, which aren't required to be remitted until the end of 2021 and 22.
Turning to the operation side, let me start with senior housing.
Focus my comments on same community results.
Looking at the U.S. national trend of New Kobin 19 cases on page nine of the Investor presentation April was significantly worse compared to March and then became less severe in may.
However, as a country reopened the number of new cases, it started to increase in the second half a June and grew substantially in July.
Brookdales month over month of change in occupancy showed a similar trend declining a 220 basis points in April and moderating to a 70 basis point decline in June.
In July however, our month over month occupancy trend was 130 basis points lower due to move outs returning to a more normal level.
We are monitoring had been national pandemic trends closely.
Independent living has a longer length of stay so it's a sequential occupancy declined in the second quarter was smaller than assisted living and memory care.
Rather poor was a 2.3% higher on a year over year basis, yet, 1% lower on a sequential basis. All we continued to be disciplined with rates given the longer length of stay in independent living we saw a mix shift towards aisle within our portfolio.
With lower rent and care related rates for independent living our average rough poor was compressed.
Senior housing revenue on a same community basis was 3.5% lower compared to the second quarter, 2019, and 6.2% lower on a sequential basis, we estimate the impact due to cope in 19 resulted in nearly $43 million of lost revenue in our same community portfolio.
For the quarter.
Our second quarter results include $6 million of grants related to our senior housing business, mainly related to the skilled nursing Medicare business.
In July we applied for and expect to receive up to approximately $50 million of additional grants from the provider relief fund the Medicaid and ship allocation.
Same community compensation related expense increased 2% on a sequential basis, mainly driven by incremental covert 19 related work activities, such as delivering meals for in apartment dining and premium pay.
Other facility operating expense increased $29 billion compared to the prior year quarter, driven by non labor covert 19 costs of $39 million. We mitigated a portion of these covert 19 expenses through cost reduction actions, including lower marketing and lower variable costs related to occupancy and community.
Restrictions, we will continue to adapt our strategy to market conditions, and expect our marketing costs to increase and the third quarter as communities loosen restrictions.
In summary, due to lost revenue and incremental costs related to the pandemic covert 19 has had a significant impact on our senior housing business.
As a result of these impacts our same community operating income decreased to 32% compared to the prior year quarter or 35% excluding recognize grant.
Moving to the health care services segment to add to some these commentary on revenue we estimate that covert 19 resulted in a $15 million of lost revenue in a second quarter.
We are starting to see the benefit of the decisions our health care services leadership team made to improve the business while implementing PDG.
Notably, we better aligned opex to revenue with health care services operating expense, 7% lower in the second quarter compared to the prior year quarter.
Operating expense was also favorable sequentially.
We received a meaningful government grants related to the Medicare portion of our health care services segment in the second quarter, we recognized $17 million of grant relief. It is important to note that the grants offset a portion of the year to date covert 19 impact.
Turning to Gionee, the second quarter was favorable by 9% compared to the prior year quarter.
We have been disciplined about matching our workforce to the needs of our business and are seeing benefits from the adjustments. We've made over the last year. In addition, we have tightened our normal spending including reducing events and eliminating nearly all business travel.
Even including the benefit of government Grant covert 19 has had a significant impact on our business. Our estimated lost revenue and direct incremental covert 19 costs through June thirtyth exceeded grants recognized as other operating income.
Reported second quarter, adjusted EBITDA of $45 million compared to $104 million for the prior year quarter.
Adjusted free cash flow was $113 million for the second quarter compared to negative $16 million for the prior year period.
The 129 million dollar year over year improvement can be summarized in three highlights first working capital improved $139 million, which was primarily due to the cares out second non development Capex was $45 billion lower than prior year.
As mentioned last quarter, because community access has been restricted for they wellness of our residents, we delayed or canceled the many elective capex projects.
Those two benefits along with $10 million of lower interest expense more than offset the adjusted EBITDA decline of $59 million.
Now let me share what we are seeing for the third quarter for senior housing we are seeing better move in progress in markets, which are outside of hot spots, but as new covert 19 hot spots in the U.S. markets increased we had lower sequential occupancy as I've already highlighted.
For health care services, we are cautiously optimistic to see revenue improvement in the third quarter, while tempering our expectations given recent hot spots in Florida and Texas.
For Cobot 19 costs, we were able to build the multiple months of P.P. supply. Therefore, we expect expenses will be significantly less in the third quarter.
For government grants, we look forward to the receipt of the Medicaid Grant and any future programs are funding introduced by the government.
Let me wrap up with our liquidity outlook as of June Thirtyth total liquidity was $600 million, an increase of $64 million from March 30, Onest. The increase in liquidity was primarily the benefit of approximately $85 million of temporary relief under the cares Act.
On July 27th we announced our agreement with Ventas as I referenced earlier, the transaction significantly improves our capital structure. While there was an upfront cash use of $119 million in the third quarter. We will also begin seeing an ongoing lead benefit of over $20 million and lower.
Or rent.
Overall this transaction has approximately a one year payback and a meaningful long term return.
I'm thinking about third quarter liquidity the benefits from the expected Medicaid grant and additional deferred payroll taxes will offset the reversal of the Medicare advance payment and covert 19 expenses.
What remains is the upfront payment to Ventas EBITDA pressure from lower occupancy and seasonally higher expenses, partially offset by lower rent and approximately $20 million of development Capex and debt principal payments. Please note liquidity expectations are based on among other items, new move ins and move outs.
Assumptions.
We remain judicious with investments we continue to look at options to further strengthen our balance sheet.
And now I'll turn the call back over to Cindy.
I am very proud of Brookdales everyday heroes, our residents patients families and others, who have rallied to focus on the things that matter most our residents and patients as we take actions to help protect them.
19 is a formidable enemy and actions that each and every one of us take matter.
Our residents patients and families all play key roles by adhering to our high safety measures.
We are stronger together and we've been internally grateful for the encouragement that our president and associates have received from residence families and other loved ones.
As the country approaches a new normal I believe there will be a better awareness that brookdale is a leader in health protection protocol in senior housing.
Families will want their loved ones in a community that they trust to provide high quality care and Brookdale has demonstrated that we can do just that we are operating from a leadership position and we believe we're taking the right actions to position brookdale to create long term value for all of our show.
Our holders and other stakeholders.
Sure and this is Kathy please open the line two questions. Thank you.
Ladies and gentlemen, as a reminder, if he would like as a question. Please press Star then the number one on your telephone keypad. After we draw your question has to be alky.
Your first question comes from the line Brian Tanquilut.
You know ask your question.
Hey, good morning, guys.
Thank you for all the details the provided today. So I guess my first question Cindy.
To US deal you highlighted at the beginning of your opening remarks.
How are you thinking about the economics that you gave up to get the rent concessions I mean, you gave up warrants.
Brookdale as some upfront cash payment. So just wanted to get the your perspective.
That decision to make that move to restructure that lease today and in the way that it was restructured.
Good morning, Brian. Thank you for the question, we're very excited about the win win transaction that we announced with that.
Grateful for that came working with us on the there's no question that this transaction improves our financial position.
The rent reduction that we received are significant and Herman and they totaled more than $500 million Brent production.
Fortunately, we eliminated the financial covenants and renewed burden.
Longer term change of control provisions, including extending it above market leases, requiring additional capex funding and security deposit we do still have a 25 million dollar change of control now given our liquidity provision position, we felt comfortable with providing an upfront cash payment.
In exchange for receiving a significantly longer term cash benefit now if you. If you know to the transaction has roughly a one year cash payback. In addition, we sold five assets at a very attractive six that half percent cap rate with the gionee allocation and we continue to expect.
And the property.
The new debt that we had sand has a similar interest rate and yet it can now be repaid at par and we think that the warrants are nice alignment of interests with that.
Got it makes sense, so they got threading too.
Just the operational update you gave so obviously, Texas and Florida become hot spots, but are navigating that in terms of the closures that are actually happening operationally the facility level or I'm, sorry, the community level.
Is that more market by market or is that facility Bay facility and then how quickly are you able to ramp that up just trying to get a gauge of.
What the recoveries that it look like as we get to August September and the back half way there.
Yeah, Brian It's a great question. There's no question that Cobot 19 has created an unprecedented public health emergency and our top priority has always been health and wellbeing. Our residents are patients our associates.
Learning organization and were very nimble I think that you'll see that our response is driven by a national framework with support infrastructure that only brookdale can provide but the execution is at a community level and so if you look at page nine of the Investor day.
Okay.
We've done a really nice job opening up our communities, where there is less co that exposure because we know it's critically important for residents to be able to see their families and loved ones at the same time when there is a co that exposure within the community we prevent additional residence.
From being exposed through our protocol now I'm excited about.
Proactive comprehensive effort, we made to test all residents and patients at our community. We think that will provide a very big long term benefit to the community because if you can identify asymptomatic.
People earlier, you can prevent the spread over the long term that'll make your communities much safer and we'll protect the residents in a better way, but again, we will open our community is up one by one.
Is it safe to do so always in accordance with best practices and state and local guideline.
So do you think.
Think about just the broader market writing there's certainly.
Build nursing facilities, right, now and rightly or wrongly some people bucket senior housing assisted living and.
And the senior housing or India skilled nursing home bucket, but how should I be thinking about.
The structural integrity of that business in terms of defensibility again. This is concerned right I mean, I know you have a lot of memory care assets in there that.
Yes.
Pretty stable and.
Residents get really or potential read that it really avoid going there delay it for so long. So how are you thinking about just any structural changes that have happened to the industry since cold.
Yes, first it's true that there was some very negative traffic around nursing homes and I think there is a general confusion in the market about the difference between nursing homes and senior living So I think first element is education, we have had very strong infection control protocols within senior living and our outcome.
The industry are very good every time, we talk about infection rates with third parties. There are always amazed at how effective we fan to help keep covert 19 out of our communities and limit spread within the community. We've got a great sales teams to cultivate relationships will feature residents even walk.
Immunities or close to do fans and we've done a lot of market research really understanding sort of residence and prospects want and how they think about senior living and it's important to note that the vast majority of prospects are still interested in senior living.
Now, let's face a independent living is a lifestyle decision and so as you were thinking about moving into independent living as a perspective resident when the communities were close down a lot of the elements of the lifestyle that you were looking for work available.
We're very excited but now the vast majority of our communities have gone back to that quality of independent lifestyle. They have small group activity and are less generally.
Opened the dining rooms to small groups as well and so we can offer that enhance lifestyle to independent living residents again, and if you think about our assisted living and our memory care that is really a product. It's an essential service that supports seniors who no longer have the ability.
Excessively age in place at home and so that has always been an area where the lead flow isn't very strong and we expect that to continue and to recover to its pre cobot levels over a period of time. The fact that were an essential need truven serve.
And we serve growing demographic will be good for the long term.
Worse, the short term, we'll have some choppiness.
Gotcha Alright, thank you thanks, Brian.
Your next question comes from delighted Josh Raskin you'd be though ask your question.
Good morning, Josh Thanks.
Good morning, Cindy Thank you.
I guess I want to understand a little bit more around the messaging to the market around Brookfield care protocols and your outcomes and sort of the superior results that you're seeing versus the market and I guess do you think you're going to need sort of widespread comfort with the industry playing on the previous question or can Brookfield start bringing residence Inn.
There they believed that safety is better and you know.
Sort of differentiate from the from the market and then sort of part B would be when and if we get to a more normalized environment post. This is it going to matter do you think do you think that's going to resonate you know a year or two down the road.
I think the important thing is that health care is local and so the first and most important.
That is the reputation of our communities in their local market.
So our sales and marketing team are prepared to answer questions about our protocol are very strong safety protocols and they will do that with not just prospective residents.
As well as other referral sources, including health care professionals.
So I think that is something that we'll be very important over the short term I think if we look out sort of a year or two years. Once the world gets used to dealing with cobot 19, I think it will be less important but I think what will be important.
Important differentiator of Brookdale is high quality health services that we provide given our size scale. We've got more nurses that anyone we have been very aggressive helping our residents help manage their health care condition, and that's something that I think we'll see a differentiator for the long term.
And and that's something that will will so it gets down to being a relationship business.
And making sure that we can build those connections with prospects and families and I think that the strongest thing for US has always then.
Satisfaction of our residents they are resident base and their willingness to refer us to their friends.
Gotcha Gotcha and it just on the selling side sort a two parter as well can you tell us what the difference in closing rates and I sort of moved in.
On virtual visits versus the traditional in person visits has been and then there's discounting have an effect in an environment. Like this is price really the gating factor at this point.
Now, let me start with saying virtual visits are not as effective and for some of that but they have been much more effective than not being able to be revisited.
We actually knows it when we contact with certain prospects at least twice or more virtual the their potential.
Increase.
Actually we're really excited about being able to open our communities backup to prospective residents X. I think that gives them a better way to build relationships within the community.
Discounting is it really interesting question, we strongly believe that.
We are selling quality services for a fair price.
It's fair to say that and I am now, which is more of a hospitality model there was a little bit of softness.
No, but we certainly helped from an a. on memory care. If you think about moving into the mid cap pandemic do you want to move into the high quality, operator, or the low cost solution I would want my mom protected I think you probably would as well, but we'll continue to be nimble on a community by community basis.
In response to local market conditions, but we always know that rate is a stronger driver to profitability, which is why we protect the rate we think thats the right thing to do for the high quality services that we provide.
Okay. So did you say as well make sure I understand the I'll side, there's a little soft mess, but I'm just trying to juxtapose that with residence wanting higher quality operator versus low cost provider. Yes. If you think about through the difference between I am memory care right Island hospitality model there is less.
Need for.
Nursing services and other personal care services.
So it's not the quality operator doesn't matter, but it's not quite as big of a factor as it is with al and memory care. The same thing is during the last three months with I feel a lot of the hospitality like services that we were providing were different now I will say that our residents.
Started in dining we're very excited in the early days of in dining because that was a break in the routine and it looks like being at a resort.
Do you think about having interim dining every day. This is socialization that back with other residents is one of the prime reasons that people choose senior living and so that's something that's going to normalize and I'm excited that because we've been able to get back to small group activities small group dining and the dining room.
Turn to allow us to give us more lifestyle choice back one drew and always does.
Prospects dark community.
Perfect. Thanks.
So much.
Your next question comes from the line, it's Steven Valiquette.
Ask her question.
Right.
Hey, good morning has an assay thanks for taking the questions here.
So couple of things your first on page 11 of the Investor presentation, you breakout the stimulus has either been paid out to Brookdale is currently available.
And yeah basically for my view at some smaller number that are mainly tied to skilled nursing and your other segment as you as you guys mentioned yourself.
I was curious to hear more about the way this updates around the potential for broader stimulus really for the overall senior housing industry.
Maybe part of the next federal package I think there was a 5 billion number that was proposed by at least one of the trade organizations and also just any color on how this might be allocated sense, there's no real Medicare revenue.
Would it be done maybe on a per unit basis or some other method of based on your insights. Thanks, Yes. Thank you for the question, it's really a good run at a complicated issue. So let me start by saying that we're incredibly grateful for the $34 million that we have already received for targeted skilled nursing for home health hospice.
I think this is an area, where HHS was able to respond very quickly and they were able to respond quickly because.
They were known providers, who are basically giving Medicare revenue and so when it came time to make the decision to.
Or injury industries around the front lines protecting against endemic they had an easy way cities.
Now on the second tranche funding that was released under the provider fine with the Medicaid tranche and we talked about that a little bit earlier on a public call. Now this was a little easier than private pay because at least they had the Medicaid.
Provider information and they could make fund.
Funding available through those provider numbers, where it gets more difficult for HHS is private pay and the reason that it's difficult is because every dollar that they differ if they have to make sure. It goes to somebody who really deserve.
And our industry is one that has a wide variety of licensing type.
They really wanted to make sure that they were able to those.
People, who actually providing care, which is why it's now focus on assisted living memory care now based on our interpretation and all of the conversations that we've had with HHS and there has been a lot.
We believe that the fund is intended to go to providers that are private pay and in the initial tranche of Medicaid funding, if you've got a Medicaid.
Service and a private pay you can get a 2% of revenue for each of the taxpayer identification numbers that have Medicaid.
Funding in them and so that's how we've done our up to 50 million dollar estimate that you see and the investor deck.
We're very very grateful for that funding we made our application in July and we would expect to see it as an excuse me.
But the factor the matter is that the funding that we've received from the government is much less than the cost of our response to this on precedent public health emergency and the importance.
Fail and others in our industry have taken to protect our nation seniors there's no question.
Thing prevent the spread of coping 19 gets better outcome for the seniors and reduces the cost of hospitalization, which are borne by the government and so it's important to us continue to fight to get more funding to prevent the spread of cobot 19, and we're doing just that it's unclear.
At this point exactly what will be in the field for senior living but we know that 2%.
Isn't enough to cover our costs. We also know that when it came time for skilled nursing to get their funds. It came in tranches and so the first step with smaller that needed and then there were additional staff and so we will continue site. We're grateful for the support we have done an amazing job industry go infer from.
Industry that had no presence really in Washington, and because we were a private pay industry to getting organized having a message that's consistent across the industry and really being effective at communicating why it's important from a public policy public health perspective to support this critical.
Ne se industry.
Okay. That's helpful. Also just as a quick sanity check around this if we do some quick back of the envelope math if for whatever dollar amounts that might come in the future.
First of all seems to have maybe just over 3% market share of the overall senior housing industry based on units.
Whatever number come out or me all for every 1 billion a relief brookdale might be positioned received 30 million ever to 3%.
I'm curious if that's a good general way to think about a right now and also maybe you have a different number for your market share of the industry versus every person I. Just mentioned just wanted to do a quick sanity check around that thanks, well the way that I would think about it first and foremost is the market share is going to depend based on the type of product and my understanding today is that.
The relief is really driven towards assisted living memory care and skilled nursing and so that is where we would accept expect to see.
Funding and if you look at our consolidated market share I think we've got about 5.6% or so, let's say, 5% to 6% of assisted living share.
5% on memory care and about 1% on Smith.
So.
Yes, that's kind of how I think about it and then ill a smaller for US He said about between two and 3% consolidated market share on our consolidated portfolio of course, you've got other communities that we manage what would primarily affect our financial results are the consolidated community.
Okay. That's extremely helpful. Thanks.
Welcome.
Thanks for the question.
Your last question comes from the line of Frank Morgan.
No Africa question.
Good morning.
Yes, obviously, a lot of focus on cost controls and.
Im just curious though is as we you're seeing these early signs of recovery. If we get this recovery through the second half.
How much leverage do you think you're.
Maintain on those lower costs or do you think you'll see you as.
Sure.
Basically we have like back up with that growth in occupancy.
Well, let me start by saying I think our co fit costs are going to step down markedly as we go into Q3 in Q4.
As we mentioned in our prepared comments certainly we've built the supply of several months picky and that's something that we would expect to use as the crisis continues and that Steve can take you through the specifics for the rest of your question.
Yes, good morning, Frank you are right.
Between the first quarter in the second quarter, our non Covin related expenses did drop around $24 million, which was about 50% of revenue and we did that by flexing labor supplies marketing and maintenance.
So.
When you look ads.
The third quarter on some of the costs in the third quarter that some are a little bit more.
Variable in nature.
You.
You think of.
Labour and food et cetera that will continue to vote will continue to see benefits in those expense lines.
As the communities of loosen restrictions.
We will all be marketing, a little bit more and we'll have a little bit more in the repairs and maintenance.
Lines, so that will be a partial offset.
As well as I mentioned in my.
Prepared remarks that some the third quarter does have some seasonally high higher expenses, just driven by an extra workday extra holiday and higher utilities in the third quarter, but.
The bottom line is we'll continue to see variable.
Cost reductions associated with lower occupancy, partially offset by by marketing and.
And prepares the way I think about it as well is.
I think of total cash and so when you look at.
Reduction in and in Capex.
But we reduced capex by about 39 $40 million between the first quarter in second quarter, which is also a variable on help if you will.
And.
And from a lower occupancy we had some.
Fewer apartment Refurbishes, and that's driven by lower move ins. So that's.
Hello.
We'll we'll continue so on a cash basis.
The the combination of lower expenses and lower Capex from the first quarter to second quarter.
Really.
Offset the revenue decline between the first and second quarter, which which I think I'd say is a good news story.
Okay, I understand you're not giving data to this point, but obviously a little bit of an improvement you've seen.
Occupancy side, we would it be fair to.
Yes, we're sort of map and this thing out to.
Have that weighted any any notable improvement would you.
Say that made me more prudent to do that in the fourth quarter were.
Or how should we think about that.
[noise] depend on cobot 19 resurgence and so.
You can look at what we've told you about our progress through each month as the quarter and I think that that is going to be one of the things that you can use to draw your conclusions.
Gotcha, and we'll just one more question.
Could you remind us in terms of just building economics as we look at this occupancy environment. What your cash breakeven occupancy is all were either a young owned or leased building.
Sure Frank It really depends on a lot of lot of assumptions.
And so in the long term is is a little bit different than than in the short term on as well as the amount of cares relief and Kobin expense.
So we.
We do in order to drive.
Profitability on C. occupancy increasing and some.
Turning flattening and turning positive.
Without.
You know in the end about for mines are always keeping the wellness of our residents on in mind.
Really will.
Dr.
Drive profitability, but in the kind of in the short term on.
We are on absolutely focused on liquidity.
We will spend the right amount of Capex and through all spend the right amount of expense.
So.
The.
The.
The bottom line liquidity of the company is something that on I'm watching and some very proactive about.
Keeping under control for instance, we.
We recently.
We refinanced for instance, all of our 2020 maturities, which I think is something in the company did proactively and some ice.
That's a long winded answer of I'm, not going to I can't explain our I can't tell you the breakeven community occupancy.
Our two things that are important to remember Frank in terms of our.
Our breakeven has improved because.
Positive.
When when transaction that we did with fantastic will reduce our lease payments by more than $500 million over the remaining permanently and second because of the unprecedented low interest rate environment, our financing costs for our own portfolio is significantly lower.
Because we have variable financing on a significant portion of the portfolio.
Okay great.
Thank you Frank.
[noise] 50 would you like to provide a closing remarks.
Hi, Good Brian Josh Steve and Frank. Thank you for your question for the rest of our listeners I want to close by saying that we've taken swift.
Data driven and critically important actions to deliver strong clinical outcome and navigate through very difficult period, when the majority of the world where sheltering in play.
Brookdale everyday heroes were on the front line the battle against opened 19 working around the clock to support the health and wellbeing of our nation's seniors.
The work has been hard.
The near term is challenging that brookdale provide critically important services to our nation seniors and the long term demand drivers are strong. Thank you very much for your time stay safe and healthy and we'll talk next quarter.
Disconnect now.
Thank you ladies and gentleman for joining us today Fac includes the these conference. Thank all for joining you may now disconnect.
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