Q4 2020 Brookdale Senior Living Inc Earnings Call
Good morning, Ladies and gentlemen, my name is Paul and I'll be your conference operating today.
This time I would like to welcome everyone to the Brookdale senior Living's fourth quarter earnings release call.
All participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session traffic question. During this session you will need to press star one on your telephone.
If you require any assistance please press star zero.
As a reminder, this conference will be recorded for replay purposes.
I would now like to turn the call over to MS. Kathy Macdonald of Investor relation.
Yeah.
Thank you and good morning, everyone I'd like to welcome you to the fourth quarter 'twenty 'twenty 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.
Or are not historical facts may be deemed to be forward looking statements within the meaning of the federal securities laws.
These statements are made as of today's date and we expressly disclaim any obligation to update these statements in the future actual results and performance may differ materially from forward looking statements.
Certain of the factors that could cause actual results to differ are detailed in the earnings release, we issued yesterday as well as in the reports we file with the SEC from time to time, including the risk factors contained in the annual report on form 10-K, and quarterly reports on form 10-Q I direct.
For 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.
For reconciliations of each non-GAAP measure from the most comparable GAAP measure I direct you to the release and supplemental information, which may be found at Brookdale dotcom forward Slash investor and was furnished on an 8-K yesterday with that I would like to turn the call over to Cindy.
Thank you Kathy good morning to all of our shareholders analysts and other participants.
I'm thrilled with yesterday's announcement that H C. Any health care will purchase a majority stake of our home health and hospice business, which we call our health care services business, and we will retain a 20% interest.
Our top priority is the health and wellbeing of our residents part of this commitment is to offer many services in our communities with a keen focus on resident and patient needs as we pursued this business opportunity. It was extremely important to find the right strategic partner with the same.
Dedication to cure.
I believe we found a great partner in HCA Healthcare, Inc.
Health care is a collaborative health care network dedicated to giving people a healthier tomorrow based in Nashville. The organization is comprised of more than 2000 sites of care.
Our new partnership is designed to deliver value for our shareholders and ensures continuity of quality care for our residents and patients while improving access to additional health care services.
In addition, the agreement transitions, our health care services associates to a company that is a strong cultural fit with Brookdale.
As a leading health care company looking to expand their first class services. We believe HCA healthcare has the ability to accelerate the growth of the home health and hospice business and we will look to share in this growth through our retained minority interest. In addition, we believe that the.
COVID-19 vaccine clinic and recently over 600 of our communities have completed their second vaccine clinic we.
We accomplish this so quickly by pursuing all sources of vaccine leveraging our nationwide relationship with C. B S health and working with federal and state officials as well as local departments of health I'm also thrilled that approximately 90 per cent of residence received their first shot and our vaccine.
Clinics.
Led by our clinical leadership and our emergency response Center I believe are a community associates have created an incredibly strong culture a vaccine acceptance. The team's effort include proactively monitoring current clinical data strategic planning for the clinics.
Frequent communication at all levels of the organization as well a significant efforts to provide education tools and resources for associates residents and families are associates have been compassionate and providing information to residents and their families to make them aware of the science behind the vaccine or.
Dressing their question encouraging them to discuss the vaccine with their physician and providing reassurance about our vaccine clinic plans.
Are successful efforts to secure vaccines for our residents and associates and to get them vaccinated is just the latest example of how we are demonstrating strong passionate clinical and servant leadership during the pandemic.
With an early and strong resident vaccination rate brookdale should be able to improve occupancy through messaging are good news to increase moving.
Throughout the pandemic, we've taken swift and robust actions to strengthen our operations and financial position <unk>.
Let me highlight a few starting with quality care and safety.
In January 20th 20, we began our preparation we United to help protect our residents patients and associates as much as possible.
Our goal remains to continue improving our infection prevention infection control and treatment protocols and we are proud of all that we have accomplished thus far <unk>.
Brookdale has demonstrated industry leadership, we shared our knowledge of best practices with peers and the public and provided downloadable toolkit to allow others to leverage our ideas and resources. So that we could all help protect as many people as possible.
Our leadership was acknowledged by Facebook by being recognized as an exemplary leader a social media for COVID-19 response.
To prevail over this unique virus, we needed to innovate quickly. Examples include our decision to purchase and deploy pulse oximeter to help with early detection Ah for respiratory distress, providing an anti microbial barrier lotion for memory care residence and installing air purification.
Allergy to name a few.
Now, let's turn to testing, we proactively initiated baseline testing at every one of our Brookdale communities, providing our residents families and associates with the most up to date information regarding the status of COVID-19 at our communities and giving the best chance of an effective response.
To date, we have performed approximately 320000 tests, which is a monumental undertaking and we believe is significantly higher than others in the industry. The.
The final area to highlight is our leaderships twenty-twenty focus on helping seniors live their best lives.
The wellbeing of our residents requires a balance between both their physical and emotional health.
We provided many new experiences for residents and their families. We also developed welcome plans to ensure moving processes or made easier while adhering to federal state and our own safety guidelines.
Even with the pandemic during 2020, we welcomed over 15000 new residents.
I am extremely grateful for the dedication of my team and their accomplishments. Moreover, I'm, especially proud to share what external experts are saying about brookdale.
J D power and associates recently announced that Brookdale ranked highest in customer satisfaction for assisted living memory care communities.
And most importantly for US are Twenty-twenty resident in family Survey received nearly 10000 responses through this direct feedback we learned our customers were overwhelmingly satisfied with how we have communicated during the pandemic and that a significant majority of respondents agreed with their specific.
<unk> community response.
We are a business of people taken care of people. So we will continue to ask for feedback from our residents and families.
Turning to vaccines, we were and continue to be a leader in advocating for senior housing residents and staff to be part of the first priority for the COVID-19 vaccination <unk>.
During 2020, we began the efforts with advocacy to ensure that assisted living residents were prioritize to receive the vaccine at the federal level.
Ahead of vaccine approval, we started educating our residents associates and families of the importance and benefits of receiving a vaccine.
We worked with C. B S help to get our vaccine clinics scheduled as quickly as possible.
We did the heavy lifting to ensure that the administrative effort necessary to complete the clinics was accelerated.
As Twenty-twenty drew to a close it became clear that the federal prioritization wasn't enough to get our clinic scheduled and we began aggressive advocacy efforts at the state level. This intense focus on the health and safety of our residents and associates has positioned as well for 2021.
There was so much excitement and anticipation throughout our company with the reality of our first vaccine clinics on December 18th.
Since then with our unwavering commitment to be the best we have hosted vaccine clinics at a rapid pace.
Our team stepped in help protect our residents as quickly as possible. So that we can emerge from this space of of COVID-19, pandemic and focus on winning.
As I mentioned, we have a strong relationship with C. B S health, which is our annual flu shot clinics partner, we nimbly navigated the many many logistical steps necessary to host vaccination clinics and to take advantage of every possibility to accelerate our clinics for.
For example, our residents cheered when we were successful in organizing a vaccination clinic in less than 24 hours.
I am so proud that we uploaded our resident and associate rosters within four hours of being notified of a vacancy and a schedule.
Or month of planning allowed one of our communities to qualify to take that newly open clinic slot.
We were prepared to do whatever it took to have our residents prioritized.
We received external feedback that we were prepared hit the ground running and worked well with a vaccine team.
As the largest senior living company in the U S. We have the ability to have a significant positive impact on helping a very large population of seniors.
Over 85000, COVID-19 vaccine shots have been administered at our community.
While the vaccine is a very important step forward, we are reinforcing the absolute need to continue to be diligent use P. P E appropriately and practice socially distanced interaction, we continue to invest N and implement innovation and technology in our communities to enhance our.
Ready strong infection control protocol.
Recently, we added electrostatic sprayers for more efficient disinfection in every community.
We are piloting additional technology, including ionization air purification.
As I mentioned earlier are top priorities continue to be the safety and well being a residence patients at associates.
During the pandemic our efforts have been woven throughout every fiber of our work.
These efforts have become as natural to us as are cornerstones of passion courage partnership entrust with.
With the support of the corporate teams the local leaders provide the critical foundation for their community success.
This is why I am pleased that executive directors and health and wellness directors retention continues to be over 70%.
Considering the length and depth of this pandemic and the massive physical intellectual and emotional demands. It is placed on our leaders. This retention is truly extraordinary.
I will always be grateful for the incredible efforts are leaders displayed to help protect the precious seniors, who we serve and help protect each other.
We are grateful for each of our Brookdale everyday heroes and the special acts of kindness. They provide our residents countless times a day, especially during the holidays.
To provide extra assistance for employees during these difficult times, we bolstered our associate compassion programs every executive leadership team member and numerous other associates donated to the programs, resulting in approximately 1.8 million from paid time off donations and 2020, along with board members.
Contribution.
This is very important because we build our business one relationship at a time and the only way to do that is to have great people.
I am personally very grateful that my contributions over the past year help support a large number of our associates with COVID-19 wage losses as.
As we look to the bright future ahead of US we need to ensure our associates have the right skills to help brookdale when that is what I'm pleased that in 2020, we continue to focus on our associates development, we enhance training created development programs and recently training magazine recognized.
<unk> in the 2021 training top 100 before.
Before I turn the call over to Steve Let me share a few financial highlights for the fourth quarter.
Most states had a resurgence and COVID-19 cases, especially after the November and December holidays, we persevered with our strong infection control protocols and use of testing while the resurgence affected senior living occupancy we continue to make progress sequentially, we reduce the rate of the offer.
And see decline and over 3600, new resident moved in during the quarter for over 15000 during Twenty-twenty, an extraordinary achievement during the pandemic.
That is worth repeating during the third and most severe peak of COVID-19 cases throughout the United States and around the holidays over 3600, new residents and their families put their trust in Brookdale and moved into our senior living communities.
For our health care services business in the fourth quarter, our revenue trend turned positive with two per cent growth on a sequential basis, excluding federal grants help.
Helping to ensure the safety of our residents patients and associate it was and is our top priority accordingly, when an associate had a COVID-19 exposure they couldn't deliver services to our patients this impacted revenue.
Let me turn now to liquidity.
Our company's financial position strength and even further in the fourth quarter with 575 million of available liquidity at your end the.
The most significant financial benefit in the fourth quarter was the recognition of 78 million of government grants with the vast majority from phase two of the provider really fund the phase or assisted living communities started to receive France should more government funding become available we will continue to apply.
Hi for additional brands. This support is critically important to our industry, we've taken a leadership role in federal and state level advocacy since the very beginning we educated numerous government officials about the critical role the private pay senior living industry place in the health care continuum.
We are grateful that once they understood we received support to off set a portion of the expenses that we incurred to help protect our residents against COVID-19.
I am pleased that the new administration calls for the protection of vulnerable populations and congregate settings.
We anticipate that H H S will make additional COVID-19 funding available.
In addition to the fourth quarter Grant we saw the first full quarterly net benefit from the vent has negotiated transaction for permanent cash rent expense reduction, which will be $500 million of saving over five and one half years.
As we start the recovery phase, we're focused on winning in the near term and ensuring that we have a strong foundation for long term success, we are continuing to improve our winning formula to increase occupancy by differentiating Brookdale best in class services that consumers value most here's our stress.
<unk> to get back on track as we put the pandemic behind us.
First we are focusing unhealth plus care, we will extend our successful and game changing vaccine strategy.
Are accelerated schedule of COVID-19 vaccine clinics offers another level of protection for our residents should help increase social interaction for residence and enables us to welcome thousands of new residents every quarter.
We know that many health care professionals believe with a vaccine is critical for making referrals, we have enhanced our outreach program to speak with health care providers about our vaccine progress to gain more referrals.
This health plus care action plan makes our communities more attractive for prospects to move in.
Second we are sharpening our business add through sales transformation to become more nimble by retooling, our sales function or associates had the right skills processes and tools to respond to local market conditions, we are enabling them to make the best decision at a local market level two.
Eight moving while growing rough par.
We are strengthening our local referral an aggregate of relations to rapidly and intentionally connect with prospects and their families digitally an in person. We are sharpening our analytical focus to identify opportunities and to evaluate success. These plans will provide a wider and deeper reach.
And the local communities to drive higher occupancy.
Third we are better capitalizing on our leadership position for residents and prospects with higher acuity needs, we will leverage our clinical and programming expertise to expand our services to deliver better health outcomes and higher social engagement from a residence.
The three pillars of growth are built on a strong foundation of servant leadership meaningful strategies to attract develop engage and retain the best people and financial scale combined the sets us up to thrive.
I'll now turn the call over to Steve.
Thanks to build on for these comments regarding our liquidity position 2020, there were three significant areas, where we strengthened our financial position W financing real estate transactions and our successful effort and advocating for government relief and the newly announced agreement with.
N C. A health care when completed will further strengthen our liquidity position I'll speak more about this exciting news a little later, let me start with the 20th 20th financing Princess from highlights in March we refinanced the majority of 2020 per charities and by September we had refinanced the room may.
<unk> 2020, and substantially all of the 20th 21 maturities, it's worth noting the new tenure mortgage debt is nonrecourse and considerably better interest rates in December we executed a new revolving credit agreement at your end this revolver funded $40 million of letters of credit.
And have it $22 million remaining capacity as of today, no 2021 maturities remade.
The second area in which we improved our financial position came from that'd be successful results of negotiating with our wheat and other partners.
January 2020, we exited substantially Oliver unconsolidated adventures with helping and received a 100 million dollar management termination fees by.
By mid 20th 20, we completed the most significant at least restructuring and our company's history. The transaction woodland pause permanently cut our cash for his expense by $500 million, we will see this benefit throughout the next five years.
L T C renegotiate at least flexibility, including multiple renewal options in the fourth quarter. We continued to reduce our managed portfolio. We recognized approximately $5 million of management for determination revenue associated with the transfer from the properties, which we expect to be completed for the first quarter of 2021.
Overall, we will realize over $1 billion, a future Lee savings primarily related to these transactions.
Third the receipt of government grants for senior living operators is thanks in part to Brookdale and others in our industry advocating at both the federal and state levels Brookdale Finance theme invested significant time to track the details and submit all the necessary government for hours.
For 2020, we received and recognized approximately $120 million of Covid related government grants and other relief, but do not need to be repaid we are grateful for government grants to our vital industry, which help pay for the P. P E. We needed and the many other steps retook to try to keep T members.
Ah residences, and we anticipate H H S will make additional funding available.
Turn into operations I'll start with senior housing and will focus my senior housing commentary on the same community results.
And the fourth quarter restarted it publicly sharing occupancy each month to provide timely visibility as a pandemic professors for the fourth quarter Twenty-twenty Senior housing revenue was 11 per cent lower compared to the fourth quarter 2019, and three per cent lower on a sequential basis driven by occupancy we estimate the impact.
Of Covid was nearly $94 million of lost revenue for the quarter for the same community portfolio.
Detailing the revenue components are sequential occupancy decline moderated in the fourth quarter. This is a remarkable achievement considering the height of the nationwide resurgence and Covid cases, and as a tribute to our amazing community teams, who named diligent and focused on what they could control while continuing to.
Safely welcome new residence and.
In the fourth quarter, moving stabilized compared to the car you're on a percentage basis and were expressly better than the third quarter on a year over your comparison.
In December we had more moving the November this positive trend has continued into the new year with January bringing in more moving in December on average moving volume at communities with no or few restrictions <unk> 39 per cent better <unk>.
<unk> a rug for for the fourth quarter was 3.9 per cent harder on a year over year basis and held steady on a sequential basis with 2500 senior housing operators be fragmented market remains and very dynamic.
Better market rates in the fourth quarter, all set strategic and select local market responses.
As Covid cases researched across many states.
For Covid related expenses increased resulting in $26 million at the same community expense in the fourth quarter.
Excluding COVID-19 expenses, the sequential Opex increase was mainly labor related due to the difficult to operating environment, we used more contract labor and overtime.
The fourth quarter same community operating margin of 27.8 per cent improve sequentially. Thanks for the benefit of government grants you had remained below the price of your quarter due to occupancy pressure.
Moving to the health care services segment, while revenue was lower compared to the fourth quarter 2019 on a sequential basis revenue grew two per cent with our stringent protocols in place to try to keep patients save some associates were required to self quarantine, which well clearly the right thing to do we build.
Leave translated into lost opportunity for higher growth in the quarter.
Sequentially hospice revenue delivered 11% growth and for your revenue was within one per cent of 2019.
In addition to the good news on the health care services revenue growth. The team employed strong cost controls and delivered two per cent lower expose on the sequential bases and eight per cent on it for your basses. We continue to see the benefits of structural changes made in early 20th 20, along with our efforts to ski.
All operations throughout the year, two butter magic expenses to revenue.
Turning to <unk> early and 20th 20th with the unconsolidated adventure community sale to help speed, we took actions to scale. Our work force in a line infrastructure to go for business needs and 2020, we delivered annualized Jean a savings of Amelia $15 billion prior to normal cost for.
<unk>.
For cash operating lease payments. This is the first quarter you can clearly see the full quarterly benefit other than post transaction and all the other actions taken during the year cash operating lease payments for the fourth quarter, where more than 30 per cent lower compared to the prior year quarter.
The fourth quarter government relief help to mitigate a portion of our for your Covid costs. The fourth quarter adjusted EBITDA of $99 million was nearly the same as the prior year quarter.
Justin free cash flow was nearly $20 million better in the fourth quarter compared to the per year period. The key drivers were non development, Capex, which was $21 million lower than the car your quarter and 2020, we delayed or cancelled many elected projects. So that only a central workers were present in the community.
As part of our offers to help protect residents and associates and the smaller year over your working capital of out of it was all set by $10 million of lower interest expense, reflecting lower interest rates, along with lower financing lease costs related to the healthy Prinze action completed in January <unk>.
2020.
Turning to liquidity as of December 31st total liquidity was $575 million a nearly 85 million dollar improvement from September 30th the benefit was primarily from government funding and the new credit line revolver.
No let me share what we're seeing for the first quarter of 2021, and some high level for Ya reminders as mentioned earlier, our sequential occupancy decline moderated in the fourth quarter.
With a nationwide Covid case resurgence in the public in late 20th 20, we continue to feel the impact though there are some encouraging signs in January senior housing month over month occupancy sources. However, we saw sequential moving improve by month and as the quarter per.
Addresses we expect the occupancy decline to moderate helped by the positive impact of our accelerated COVID-19 vaccine clinics.
As a reminder, occupancy historically turns positive late in the second quarter and we typically see pause the sequential growth in the third quarter given what we know now we would expect to this pattern to recur in 2021.
In January our annual price increase took effect and we expect it will generally help mitigate labor rate increases as mentioned earlier, we will continue to respond appropriately to competition in local markets.
We anticipate HHS will make additional funding available to help mitigate the second half 20th 20, Covid impact we will provide updates as they become available from the government.
Continued funding is important to offset the COVID-19 related costs that we expect to continue incurring in 2021 for G. N a as the country's recovery progressive throughout the year, we expect more travel and annual compensation related increases for our associates with the majority of.
<unk> restructuring and dud refinancing completed the fourth quarter 2020 results will be a good quarterly run rate for 2021 for cash for operating release payments and interest expense we.
We expect non development capex to be approximately $140 million and 2021 with some higher investments offset by increased less for reimbursement.
Lastly, two working capital reminders that are subject to change based on the timing of the H C. A health care transaction closing under the accelerated in advance payment program and 2020, when you receive the benefit of accelerated Medicare payments currently have the repayment or approximately $45 million.
Is doing 2021 and the balance in 2022.
In 2021, we expect this to be repaid across the second third and fourth quarters under.
Under the care of that we elected to the for payment of the employer portion of the social security payroll tax in 2020.
Currently half of the deferred Mount or approximately $36 million does during the fourth quarter of 2021 and the balance at the end of 2022.
For health care services, we will continue reporting the result, as a segment until the transaction closes, which we expect to occur late in the second quarter or early in the third quarter 2021 subject to regulatory approvals.
The implied transaction value is $500 million upon close we will retain at 20 per cent equity interest an adventure with the implied valuation of $100 million accelerated in advance payment program and payroll tax deferral program balance is related to the health care services for.
<unk> and not yet repaid will be deducted today. These amounts are approximately $85 million.
And transaction related adjustments and expenses will be applied as a result, we expect our net upfront cash proceeds will be approximately $300 million.
We plan to update you on the use of proceeds as we make progress on winning the recovery.
A semi mentioned we are excited about the future venture with H T. A.
With $575 million liquidity at the end of December plus the future H C. A transaction proceeds we will continue to focus on strengthening our liquidity position and plan to remain judicious with investments I will now turn the call back over to Cindy.
2020, with an unprecedented year with a once in a century pandemic.
I'm incredibly proud of the outstanding efforts from all of our associates and the resiliency shown by our beloved President we've listened to the feedback we have received from health experts from industry peers and from our residents and their families and implemented protocols that made us better and helped keep our <unk>.
Residence and associates health and wellbeing our priority.
In closing, let me reiterate our optimism about this agreement to sell the majority of our home health and hospice business to a C. A health care and our belief in a long term opportunity for Brookdale.
With large demographic growth in the next few years, we believe our investment thesis is stronger than ever. This concludes our prepared remarks operator. Please open the line for questions.
[noise] as a reminder to ask question you won't need to press for one and your telephone to Redraw. Your question press and for Pataky. Please stand by while we compiled between a roster.
[noise] her first question is from <unk>.
Josh Raskin with Nephron your line is open.
Great. Thanks for good morning, Uhm. So you know if I think about 120 million of cares Act funding <unk> you know stuff that the amount you don't have to be paid back that that really just I mean, it pales in comparison to I think you talked about 280 million of lost revenue in 125 million or so of you know additional COVID-19 costs and so.
You know if you think about okay take out the two COVID-19 impacts revenue of course take out the government funding EBITA would've been something crazy $300 billion higher right and so what I'm really trying to figure out is is you know were reported EBITDA number of 389 billion. This year, how do we think about that as a run rate for the company I know.
It's difficult to get guidance, but just trying to figure out what you think of your sort of base line, you know when and if things get back to normal even sort of a new normal.
That's a great question and let me just provide some context about the care Sunday and then febrile jump and an answer your question I think it's really important to know that our care Sunday relate.
<unk> to our queue, one and two two uhm expenses and revenue loss and we are hopeful that the H H S will open the provider fun to allow us to get reimbursement or partial reimbursement for the the very significant expenses that we incurred in Q3 and Q for.
Help protect our residents as well as the revenue loss now for Ya can you take a minute and answer the rest of the question.
Sure Josh Uhm, you're right Uhm until we are really see virus related metrics, a moderate to a level that it really allows for reliable forecasting instead of guidance will continue to disclose occupancy each month, and we'll discuss business trends on a quarterly basis.
For the.
The business trends in the in the first quarter, you need to know right occupancy and Covid expense. So first is right in January the annual price increase took effect in this <unk> sequential change and Rev. For from Fourthquarter, two first quarter will be about the same as we saw last year.
Second is occupancy so as the first quarter Progressive we expect occupancy that decline that we saw on January January to moderate certainly was it's gonna be helped by the positive impact of the accelerated vaccine clinics and.
As I as I already mentioned sequentially moving improved from November to December and again from December to January.
<unk> today, we have 97 per cent of our communities open and of course will continue sharing occupancy each month.
And the third piece is COVID-19 expense.
Our top priority is the the health and wellbeing of our residents patience and associates.
We saw Covid cases, pecan January and they are dropping quickly, which will help our COVID-19 expenses in the first quarter. So we expect first quarter COVID-19 expenses to decline slightly from Q for and with a vaccine we expect a sizable <unk>.
Reduction in queue, too and further reductions and if I could have.
So I I guess my question is really more just taking the totality right and and I think Cindy's comments about day Cares Act funny for 120 million really only representative but the uhm impact in the in the first half of the year plus expenses revenues Lhasa theoretically you know you'll get sort of you get more money back uhm and what I'm really again trying to say is you know if you <unk>.
About 281 million of lost revenue at $126 million of additional costs to sort of $400 million plus of EBITDA impact.
You know how do we think about that going forward I mean, I I. It would be you know it really is sort of extraordinary beyond impressive to think about the revenue base that you guys are running now uhm producing an EBITDA level. That's you know what price something closer to 750 or 800 million right <unk>. So as marches give <unk>. So what are the moving pieces right like I.
Guess I'm just trying to figure out or you you know should we be expecting a lower occupancy rate then you've seem historically went all of a sudden done do you think there was a rate impact here I would assume the COVID-19 cost kind of go away over time.
Yeah, Let me, let me provide a few high level come in for Nancy can jump and so clearly occupancy want a significant issue and 2020 and it will take awhile to rebuild the cancer. So we believe that the vaccine will help us accelerate the recovery because we know that health care professional.
That are a significant referral force are looking to see if the vaccine to be more comfortable in referring we know that prospects in influencers are really looking at those vaccine numbers for the question really becomes is how quickly can we rebuild our occupancy. So we're focused on the vaccination clinics to accelerate that we're focused on sale.
Transformation to make sure that we capture more than Orcher Sheriff moving and we're focused on higher acuity, which will help us on the right perspective, we certainly lead.
And are clinical programs that are programming and so no will.
Will help us accelerate out of this and when the recovery, we will need to see what the macro virus conditions are and sort of how comfortable people are with returning but we are certainly focus on rebuilding our occupancy as quickly as we possibly can.
Okay, and then if I could just make it one last one just a vaccination rates do you have a sense of how your vaccine vaccination rates compared to other senior housing operators is is that something you're sales team can work with.
I think we're doing an amazing job. So uhm the appointment fried for me or is it in the first month vaccine availability, we executed our vaccine clinics, two and a half time.
<unk> send the entire industry. So we have more residents vaccinated than anyone else clearly as I announce from call today 100 per cent of our communities have Heather first vaccine clinic and 600 class communities have had their second vaccine clinic, how again, we're well ahead of the industry with.
Regard to our vaccination rates, we've had a wonderful culture a vaccine acceptance.
Line 90 per cent of our residents are vaccinated for by the first shot at least and quickly getting a second shot from there.
And we've seen approximately 50 per cent of our how can being that kinda, which is well above the numbers that you see it in the press. So we believe that we are a leader in this area and we continue to press hard on this important initiative.
Great. Thanks, Thank you.
[noise]. Our next question is from the line Steven Valiquette with Barclays. Your line of <unk>.
Alright, great. Thanks for morning, everybody.
Just around the the sale for health care services business I.
I got from curious and maybe throw down a little bit deeper on the for the normalized profitability. If you look back before 2020 and Covid impact.
The the segment for N Y margin decrease from the mid teens about five years ago to around five per cent in 2019.
2020, obviously somewhat of a throw away your for analytical purposes, but if you think about brookdale still having an 20 per cent ownership going forward be able to provide a little more color of thoughts on what you think will be the normalized margins on his operation.
Once they're in the hands of let me see here.
And also since you're gonna be reporting this segment for a few more quarters before the transaction closes.
Just curious if there's any sense for for 22021 with a segment resolved maybe like similar to 2019, Joe Smith.
Sort of you know from goalpost to think about normalized profitability before age.
Alright.
Sure and I'll take the first part of the question and leave the second question to Steve how for.
First when we complete for transaction our expectation is that our minority interest in health care services will be reported as an equity investment and so it'll come through equity accounting as opposed to ask for reporting the revenue expense. So you won't directly see in the margin on our P. Now what we are most excited about.
Is H for you. It has 32 million patient encounters and a lot of the patient absolutely need home health and hospice services. So we believe that the growth trajectory VHS. After the sale is gonna be credit.
Please state and we are so excited about that which is why we are retaining the interest now we have always thought that'd be a task will return to more traditional operating margin as you know our 2019 margins were impacted by.
That revenue cycle issues that we had.
As well as 2020 being affected by COVID-19, So we always expected that the business would get back to.
Normal profitability and the quality improvement that we saw and 2020 are actually part of that recovery. Steve. If you could just spend a minute and just getting a little bit more color on sort of how you're thinking about 2020 that'd be great.
Sure. Thanks for the one the.
The it should be.
Yes. It's it has improved if you look at the N O Y all the absolute numbers throat 2020 at has been on a steady improvement first quarter through for quarter, and we expect about that same improvements.
On average throughout 2021.
Maybe.
The volume if you will was partially impacted by occupancy is occupant seems here in senior housing stabilizes and grows we we expect a tailwind there and uhm as as I already mentioned some of the Covid pink.
Impacts around the country also impacted uhm.
<unk> for the fourth for.
Okay. So for strip out the the stimulus payment from like at the kind of organic sequential improvement quarterly probably better for good Yep for 21, Okay. That's perfect.
Thank you.
Our next question is from the line of Frank Morgan with or a P. C capital market. Your line is open.
Barney Frank <unk>.
Good morning, and congratulations on that transaction just one detail just curious <unk>. The 20 per cent interest was that <unk> was that your idea was that your request or was that for Chris of a C E.
It was a joint decision I think it is truly a win win transaction. This transaction is great for our shareholder it's wonderful our for our residents our patients and it's really good for associates, what we believe both a C. A health care and asked if this is a great alignment of interest HCA needs to continue to ensure.
Sure that the the penetration rates in our communities are strong and that Brookdale has the services offered to residents and what what we want from Brookdale is we want to really enhance the availability of services for our resident and so we're really incredibly excited about having better at.
Fast, it's a health care as a result of this transaction.
Gotcha, and then on the vaccination fine I'm just curious for appreciate the color of their.
Did you notice any difference you know as as those facilities. I think you said you had 600 of them have now have had to vaccine, but it does that was rolling out could you see any discernible difference in moving and activity as you know within weeks. After those second vaccines were implemented across the facilities.
That would be my next question.
I think the important thing to know is that we have seen moving improved between December and January and we're also seeing that ends in for Ya between January and February at least the early part of the month I'm certainly gonna wait to see how the one for clothes of that but we don't know exactly whether that was caused by the vaccination clinics or no.
But we do know that we had a number of residents who move then to be part the opportunity to uhm get the vaccine in our communities now for one reason that I'm, a little hesitant about going too far into February as you know our portfolio has a heavy concentration in Texas.
And at Brookdale, we needed to manage through successfully not just one 100, a day or a pandemic.
Pandemic, what we needed to manage started to 100 year issues with an extreme weather in Texas. So my expectation is it would probably will have a little disruption I'm moving in Texas.
During the month February because quite honestly no one could get out with the ice on the road.
Oh, that's a good point.
Thought about that then separately you've mentioned a number I think you said in this discussion around vaccines and state and local guidelines, 39% better I wanted could you go back and explain what that was again that was better.
I think so.
So.
Frank communities that.
Sure. We're open had a a 39% improved are better moving rate compared to communities that that were restricted from moving.
As as you already.
Sure and Uhm.
Point was now we're up to 97 per cent open communities. So.
Many more communities will have that that dedicated of being open to new moving.
Yeah.
Wrap up for and that's also important to note that because of the vaccines controllable knew that have been better in January I think the residents are very excited to have the opportunity to get that kind of a dark clinics and it gives us a lot of hope about the ability to have more engaging environments within our communities. When we have fully vaccinated residents.
Got Ya 151 of <unk> <unk> you in your Sladek, you always give updates on the the growth and supply and I know, there's a lot of other stuff going on with Covid and.
Ice storms in Texas, but.
When you when you look at supply grow with the day I mean, the new starts continue to really slow down and I was just curious.
Are are you seeing that in your markets are there any markers, where you continue to see new starts going on and kind of <unk>.
What is your kind of view from out in the field in terms of where new supply growth yes. Thanks.
Can I get from the size and scope of our portfolio. We always have communities that have new starts around them, but if you look at page six of our investor that what you'll see is that the starts on the fourth quarter, where 85% more than the second quarter of 2015 P and that is something that's incredibly encouraging to us and if.
You look at the fourth quarter open they were 46% lower than the queue 217 peak as well. So both starts and opens are getting better we were very helpful. About the oversupply in the industry starting to taper off and we do continue to see that so now we're just looking to winning for the recovery as we.
Hate the battles on COVID-19.
Thank you thanks.
Thanks Frank.
[noise]. Our next question is from the line do you want it as a joke with bank of America. Your line is open.
Alright. Thank you ma'am hi, how are ya. Thanks, so much for taking the question. So uhm I guess just to follow up on that.
For discussion about rest for so obviously, a 3.9% you know very good number and I guess.
Steve mentioned that do you expect you know obviously the fifth day.
Typical price you could sticking up for this quarter, so kind of how do you think that's gonna progress for the year in terms of the you know the average pricing and can you talk about you know difference between different products you know a M. For this I L. How things are a tracking there.
For your family that one for you.
You bet so <unk>.
<unk>, we're aggressively focused on profitable revenue growth. We've charged for the sales team is send you mentioned with getting every single unit in service at the highest achievable price you know, we know that profitable revenue growth depends both on right.
Which we've done a good job for typing and occupancy both combined.
The the field is seeing some pressure and in some markets Intracommunity does have the flexibility to respond to local market conditions, but within guardrails of course and.
Given the the industry's kind of high attrition rate. We we think this is the right focus because if you focus just on rates just to drive incremental volume on you're not going to maximize revpar. If you take a quick step back when you look at our.
Results same store portfolios, especially U S. Same-store portfolios. If you look at total revenue not just occupancy brookdale does appear to compare favorably.
Uhm of course, the field is given some flexibility on.
Pricing by product.
We are seeing a bit more.
Furnace and pricing and some of our needs driven products versus.
I L, which is a little bit more discretionary in the in the short short term.
And so as you as you look forward, we are or certainly focused on occupancy is already mentioned that.
It starts increasing occupancy in late in the second quarter, and we generally see third quarter occupancy growth and that's what we expect in 2021.
Alright. So then oh, so what were the for the price increases you you were able to achieving in January that you'd set across the port for Ya.
I mean on the average it's gonna be about the same as last year. It's.
It's weighted average what works for you will see is about three per cent.
Okay, Great. That's helpful and then on on this coming around you know obviously focusing on.
And you know <unk> <unk> services that are you know need day. So can you talk about kind of acuity levels in your in your portfolio. You know I you see because of August need to hide that that's great I'm on seniors you know I you see an average you know longer.
<unk> D because of that or actually how it how it higher acuity because the mower acuity residents with you know maybe postponed moving so kind of can you paint a picture here in terms of how the acuity you know what kind of support for your compares to you know <unk> before the pandemic can I, how do you expect this <unk>.
To transplant for with thank you.
Sure Joanna if you think about sort of our portfolio in the aggregate. So our portfolio is 17 per cent memory care compared to 13 per cent memory care in the industry. So acuity in memory care is the highest in our portfolio. The residents have dementia and that is very much ah needs driven.
Mm mm purchase decision and so certainly the acuity is highest in that particular portion of our portfolio. If you look at assisted living assisted living at 53 per cent of our portfolio compared to the industry at 36 per cent again. This is ah needs driven purchase.
And so assisted living moving has been.
Important during the pandemic.
Discretionary choice is really independent living which is the lowest acuity rather that so on the move inside more moving from memory care than a L. Then assisted living but that is all set in in part by the different lengths. This day. So if you think about the long.
Just length of stay is independent living then assisted living with the shortest length of stay being memory care, you've got two things moving in opposite direction that affect acuity.
And and one thing to know too Joanna is we have not only right, but care revenue as well and higher security residents to.
Provide us with higher.
Care revenue so the rug for on on those residents tends to be our.
Okay. So just so the wrap it up is the is the memory care I guess occupancy <unk>, holding a better or worse, because I'm trying to get a sense of you know an average you know how how this acuity kind of it looks like now versus versus before the pandemic.
So Joanna if you look at page 11 of or supplement that's our same community results. They are broken down by prototype and you can see the the occupancy rate there in the fourth quarter independent living occupancy was 76.8 per cent assisted living in memory care with 72 per cent and so.
If you can see the answer to that there now roughly on a year over year basis. The occupancies declined about the same amount and so that'll get for your answer.
Okay, great. Thank you and.
I Wanna make sure that we have time for other athletic. So thank you very much.
Thanks Donna.
Our next question is from the other line of Brien. Thank you, but with Jeffrey for your line is open.
Hi, Good morning City I guess my first question you just on the sale of Bhf's, HDA, where do you see potential cross salt or strategic opportunities there and how would you operationalize something like that where you gave more than just the cash portion of the deal for that.
Yeah, that's a very very insightful question brianne. So the way that I think about it is health and wellbeing of our residents is the most important thing and if you think about what happened during COVID-19 residents really wanted to access more health care within our communities and so we thought of.
A significant increase.
In telehealth, which was incredibly important so what we will do is we will sit down and work closely with a C. A health care to see where are the opportunities that we can improve the offerings for a residence and then we will make that part of our playbook I'm I'm certain day.
And what what really strong operators HCA healthcare is is they will have a plan in terms of how to.
Oh, VHS aggressively and that will be from incorporating BHF into their containment care. So that will give their patient better option and will will really help bye in my view growing both V H S as well as our senior let.
And community occupancy.
Gotcha, and then see if I got a few questions on numbers really quickly uhm G&A related to Bhf's, how much of that will say on your piano number one and then just clarification you said on your prepared remarks, you're expecting a right to offset the increase in wages. So shall we think of that as one for one and then the last one.
<unk> money expectations for 2021.
Oh sure on I believe on on page seven or so of the other supplement you'll see G&A allocation too.
Yes.
And that was about $5 million for the fourth quarter. If you annualize habits, 20th Uhm, we will have more information during our first quarter call, but that's kind of in the ballpark you should think about for.
For G&A allocation that will go away.
Lee is the the expenses I I would treat them a slightly suffering just.
You do the the rate increase certainly for.
For the for the revenue side for the expense side.
Just as we are growing occupancy we.
Feel that March of our occupancy now we're at a rate of a physician where a lot of it is fixed there's not a lot of Ah variable expense that will grow with increased occupancy throughout the second half of 2021.
So you can.
You can separate those out a little bit from from the too data points and then.
The the.
The government relief.
I think since you mentioned that we we certainly hope that.
And and government grants, we remain optimistic that the government will ultimately provide funding for.
US as well as others fighting this COVID-19 beyond the first half for 2020.
And any positive impact there would certainly help revenue in 2021.
Got it and then for the last question for you so with occupancy pick up you know getting delayed a little bit right. I mean, I'm sure you sorry, you had a higher starting point or expectation for 2021, but obviously not the case do you think that given the way your occupancy Rams, where it sort of sequential basis.
As we exit 20th 21 does a starting point for 22, guys also reset down a little bit as a result.
I think it is going to take a little time to rebuild the occupancy that we lost during COVID-19, our focus obviously is on winning the recovery and recovering as much of that occupancy. During 2021 is we can but I think it's reasonable to think that there will be some bleed over into 2000.
22.
Alright got it. Thank you. Thank you so much.
Your next question is from a G with credit Suisse. Your line is open.
Hi, everybody I just wanted to ask you a credit a couple of quick questions on the Brookdale health care services business I see a good about 50 per cent of the businesses US survey your residence at about 50 per cent is external is that external business across the board the whole amount hospice in therapy.
Sounds good you actively market for the community or somehow tied for the current residents and their families as day, maybe come in or out of the facility.
Hey, that's a good question, we have very high quality and both our home Health Center.
Outpatient services as well and so we do market directly to patients who are not connected with our senior living operations in any way and we're grateful for that business and have intense to grow it.
Okay, and then when I look at so I'm gonna disclosures it looks like about 65 per cent of your units or or or serve other home help at about 25 about hospice and 20 per cent, but there'll be.
Is that I understand the concept of do a more than the existing markets, where you're doing it for being Sir but you see opportunity to expand that reads, so that particularly hospice an outpatient therapy more of your units will be served under this new agreement.
I don't want to go too far into that talking about the future, but I want I can tell you is talk about the past. So we have a track record successfully opening new agency and that is something that has allowed us to grow our business organically with our strong installed resident space. It was easy for us to get.
Get new agencies.
Up the ramp up relatively quickly I see no reason to think that with a C. A health care is probably am that there's not a big opportunity. There now. The question is is what will HCA want to do with that and that's a question for them.
Sure and then just to make sure I understand the comment about the Jna is there any kind of a service agreement that you're gonna have for some period of time, where there's some aspect of this business that you will continue to run through your D. N a or is it all pretty much just go to H T. A and is there any provision around the 20 per cent.
Steak down the road or you assume yours retained that indefinitely or is there any put or call for visit or anything like that yes, uhm, we will provide transitional services for a period of time after the transaction closes that customary in any transaction like that and so we will we will happily.
To provide those services and the day agreement does contain put call provision several years down the road.
Okay, alright, well thanks, so much.
Thank you so much for the question day day.
Hello. This is Cathy since we've run over our time I think we'll stop there with the questions and then I'd like to turn it over to Cindy to wrap up for.
Thank you Kathy Thank you Paul I want to thank everyone for your interest in Brookdale and for joining US. This morning, we look forward to talking with you again soon.
Ladies and gentlemen. This concludes today's conference call. Thank you for your participation you may not disconnect have a great day. Thanks.
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