Q3 2021 Brookdale Senior Living Inc Earnings Call
Okay.
Good morning, Ladies and gentlemen, my name is Harry and I'll be your conference operator today.
At this time I would like to welcome everyone to the Brookdale senior living third quarter earnings release cool.
Line's on mute, we will open the lines for questions at the end of the cool How's.
As a reminder, this conference call will be recorded for replay purposes, I would now like to turn Nikolaivich, Kathy Macdonald of Investor Relations.
Thank you and good morning, I'd like to welcome you to the third quarter 2021 earnings call for Brookdale senior living joining us today are Cindy Baier, our president and Chief Executive Officer, and Steve Swain, Our executive Vice President and Chief Financial Officer.
All statements today, which are not historical facts may be deemed to be forward looking statements within the meaning of the federal Securities laws. These statements are made as of today's date and we expressly disclaim any obligation to update these statements in the future.
Actual results and performance may differ materially from forward looking statements certain of the factors that could cause actual results to differ are detailed in the earnings release, we issued yesterday as well as in the reports we file with the SEC from time to time, including the risk factors contained in the annual report.
Our Form 10-K and quarterly reports on Form 10-Q.
I direct you to the release for the full Safe Harbor statement also please note that during this call we will present non-GAAP financial measures for reconciliations of each non-GAAP measure from the most comparable GAAP measure I direct you to the release and supplemental information, which may be found at Brookdale dotcom forward Slash investor.
And was furnished on an 8-K yesterday now I will turn the call over to Cindy. Thank.
Thank you Kathy good morning to all of our shareholders analysts and other participants I hope that you and those you care about are safe and sound.
Welcome to our third quarter 2021 earnings call.
In the third quarter occupancy sequentially increased 200 basis points and more than doubled the second quarter sequential increase of 90 basis points. The growth in the third quarter was our largest average occupancy increase and at least the last six years.
Including October we now have an eight consecutive month trend of occupancy growth and we are building for our long term success.
Combining our occupancy growth with a robust revpar for the third quarter Revpar was within 1% of the prior year quarter.
With our strong sequential occupancy growth, we continue to win the recovery.
Even with the wax and wane of the pandemic, we continue to see positive momentum on top line growth.
In addition to our topline growth we continue to strengthen our liquidity from several recent and significant transaction in.
In July we increased liquidity by more than $300 million as we successfully completed the 80% sale of our home health hospice and outpatient therapy business to HCA healthcare.
We retained 20% up a newly formed venture to benefit from the future growth of this business.
The second significant liquidity strengthening transaction closed on October 1st we executed a 230 million dollar convertible notes offering that was significantly oversubscribed, Steve will highlight our plans to use these proceeds my final financial highlight but certainly not bill.
Leased is that strong September month end move ins allowed us to deliver result, better than our third quarter expectation.
Our positive financial results are only possible because of the dedicated efforts of our amazing diligent team who worked 24 seven to help keep our residents safe and engaged I also appreciate the regional and corporate teams that support our community efforts. So that we all can deliver and celebrate our pea.
Progress, which positions Brookdale for long term success.
Recently, we announced several key leadership team promotions.
We have a wide range of seasoned leaders with depth of senior living expertise within our organization I'm pleased that we executed on our internal succession plan and promoted from within Brookdale at multiple levels of the organization.
Kevin Bowman was promoted to executive Vice President community operations, Kevin brings 30 years of senior living operational experience to this position and most recently served as the West Division Vice President.
He is well regarded by associates and resident for his service leadership and has a track record of developing talent.
He hit the ground running in his new position and has already made a number of positive impacts.
Due to his leadership and talent development expertise one of his direct reports Laura Fischer with nearly 20 years of senior living experience was promoted to kevin's previous role to lead operation as the West Division Vice President.
Laura will work closely with another 30 year senior living veteran Ben Ritchie, who leads operations as the East Division Vice President.
With a combined 80 years of senior living experience I'm excited to see the business grow under the leadership of this operational powertrain Oh, we think previous EVP and President senior living community operations, Cindy Kent for her contributions to Brookdale.
Turning to an update on our vaccine clinic strategy well in advance of the Cdc's approvals. Our teams were preparing for COVID-19 booster shot clinics to help further protect our residents.
As with the initial vaccine clinics are clinical and administrative teams did a tremendous job.
For example, when the Pfizer booster was officially approved on a Friday by the following Monday several of our communities had started our booster clinics. We successfully hosted COVID-19 booster in flu shot clinics in the vast majority of our communities. Our associates have also step.
To get their COVID-19 vaccination over 90% of eligible associates have received at least one shot and this is before our targeted completion deadline.
I'm grateful that our associates are leading the way in this effort and taking this important step to help protect our residents themselves and others.
Hi vaccine acceptance rate for our associates is a very important accomplishment since residents their families prospects and health care professionals expect us to do our part to help protect those in our communities. We believe that seniors are more apt to move into our communities when they need.
No both residents and associates are vaccinated.
Now turning to financial related remarks for the third quarter.
The senior housing industry as reported by N. I C showed third quarter sequential occupancy growth of 120 basis points on a stabilized basis I'm pleased brookdale occupancy grew faster with 210 basis points growth on a same community basis.
Our occupancy increase in the third quarter is outstanding in light of the Delta variant challenge in the general population within our communities Delta had a smaller impact than the pandemic wave last winter because around 95% of our residents are fully vaccinated.
We're also pleased that we delivered sequential quarterly occupancy growth in every segment of our business.
Sequential occupancy growth in independent living accelerated in our largest segment assisted living memory care occupancy continued to deliver strong results our sales transformation strategy and marketing investments continue to deliver benefits as we accelerated move ins improved visit to move conversion ratio.
And strengthened the closing process.
<unk> and performance of our sales marketing and operations team helped us achieve occupancy gains that outpaced the industry for the second quarter in a row.
In addition, our move in recovery exceeded historical normal levels with September exceeding 100% of the three year average from 2017 to 2019.
This progress demonstrates that we are firmly on the road to recovery.
Turning to operating expenses as we highlighted in our last earnings call. We expected third quarter expenses would be higher mainly driven by labor.
Our results demonstrate the intensely competitive labor market seen across many industries.
We are pleased that our community executive directors or E. D's retention rate remained around 70% and then about two thirds of our E. DS had been in their roles for more than two years. The stability of our community leadership helps drive positive performance and provide an environment in which our new hires can get to.
Training they need to become important members of their brookdale communities.
The intense labor environment is in the news daily with hospitals, reducing elective surgeries, because they don't have enough nursing staff and restaurants, reducing service hours because they don't have enough workers.
However, eliminating critical services or reducing hours aren't options for brookdale.
We are in the people taking care of people business a round the clock 365 days a year.
Cause of the fierce talent wars, we were required to use expensive contract labor and overtime to maintain our high quality services and to support our occupancy growth.
Hiring to fill open positions is a key priority I still expect the intensity of the competitive labor market to be transitory and we will continue to work through the challenges Steve will provide other operating expense details, including normal seasonal third quarter trends.
Before I turn the call over to Steve I'd like to comment on our fourth quarter outlook. It is noteworthy that this is the first time since the pandemic began that we are providing guidance in the early days of the pandemic, we committed to return to our normal financial outlook practices as we gained confidence on our pass through.
The COVID-19 pandemic, we are providing fourth quarter guidance today and expect to return to providing annual guidance next year.
We have momentum entering the fourth quarter and expect sequential occupancy growth will drive higher adjusted EBITDA on a sequential basis.
To win the recovery and drive long term growth, we continue to focus on three priorities.
Attracting engaging developing and retaining the best associates.
Earning resident and family trust by providing valued high quality care and personalized service.
And getting every available room in service at the strongest possible rate.
I'll now turn the call over to Steve. Thanks, Cindy there are three key takeaways related to our financial results first Revpar I am pleased that the third quarter year over year Revpar was within 1% of the prior year quarter. In addition, we outpaced the industry's occupancy growth.
On a sequential basis, the strong quarterly sequential occupancy gains. We've made this year with continued price discipline are driving the business forward second operating expenses sequentially G&A savings from the HCA healthcare transaction helped to mitigate a sizable portion of the higher.
Community Labor expenses Cindy mentioned.
The resulting adjusted EBITDA increased 5% sequentially.
And third liquidity, we are pleased with the actions we've taken throughout the pandemic to fortify our balance sheet and enhanced liquidity with the completion of the HCA transaction liquidity increased more than $250 million in the third quarter and we recently issued 230 million.
The convertible notes, which were significantly oversubscribed.
This capital raise was the first app and our proactive refinancing plan.
The second step will be to refinance the first quarter, 2020, two maturities, which I'll discuss a bit later.
No. Let me provide context for these highlights starting with revenue on a same community basis, revpar or rate was more than 3% higher than the prior year on both a quarter and year to date basis, we continued to see industry discounting during this pandemic related lease up period and the third.
Third quarter, we used targeted discounting where necessary to remain competitive while maintaining overall rate discipline.
With this strategy the third quarter Rev core was slightly lower on a sequential basis.
Combining REIT with occupancy growth in the third quarter, we were close to turning Rev. Par positive on a year over year basis.
In fact D. C C. R. C segment delivered year over year revenue growth.
Turning to operating expenses on a sequential basis labor expense was higher mostly due to the difficult labor market, we used contract labor and overtime to fill open community positions. In addition, there were seasonal labor increases from an extra work day and holiday in the third quarter.
Sides higher sequential labor cause other facility operating expenses increased sequentially due to regular seasonal costs, such as utilities for G&A, excluding transaction and organizational restructuring costs and noncash stock based comp.
Third quarter expense was 6% lower than the prior year quarter, and 17% lower than the second quarter of 2021.
This was primarily related to the health care services associates, who transitioned with the business to HCA healthcare effective July 1st.
Adjusted EBITDA for the third quarter, 2021 was $35 million compared to $55 million in the third quarter of 2020, excluding the Ventas, one time cash payment of $119 million in the prior year quarter.
<unk> impact was the major driver of this year over year change.
Adjusted free cash flow was negative $43 million compared to the prior year period, a $5 million, excluding the one time ventas payment in the third quarter 2020.
In addition to the change in adjusted EBITDA. The other large driver of the your view or change in adjusted free cash flow was due to the cares Act we benefited by approximately $30 million last year, mainly from the payroll tax deferral program.
Turning to non development Capex, the third quarter was slightly higher than the prior year quarter.
Compared to the second quarter 2021 capex decreased in the third quarter due to receiving additional landlord reimbursement of certain projects were completed turning to the third key highlight liquidity.
As of September 30th total liquidity was $646 million $258 million higher than at the end of the second quarter. The main benefit was the net proceeds from the HCA healthcare transaction.
Pivoting from third quarter results, let me share context for our fourth quarter guidance.
As the fourth pandemic wave caused by the Delta variant subsides, we are seeing prospects explore senior housing options. For example, in new research, 88% of health care professionals feel confident referring their patients to senior living we.
We expect sequential occupancy growth, which includes October results and anticipated relatively normal seasonal trends around the holidays, we expect occupancy growth to drive higher sequential adjusted EBITDA as we close the year.
Turning to the key elements of the fourth quarter liquidity outlook. We closed the convertible notes on October one and received $208 million of net cash proceeds the convertible notes diversify our funding sources and serve as efficient capital they carry a low cash coupon and with a capped call allow.
Us to realize meaningful upside in our share price without dilution.
With the proceeds of the convertible notes, we immediately paid off the only high interest loan and our capital structure of $45 million in October in my introduction I touched on our proactive refinancing plan that convertible raise was the first step in that plan the second step, which we expect to complete.
By year end will be to refinance first quarter 2022 maturities to that end, we plan to pay off approximately $143 million in maturities and refinance those communities with approximately $100 million of lower leverage mortgage debt, thereby using approximately $43 million of convertible pros.
Third.
Third step will be to refinance the rest of our 2022 debt maturities given what appears to be a rising interest environment. We are currently evaluating using cash to prepay all remaining 2022 maturities early and save US several million dollars of negative carry.
Following this potential prepayment we would then expect to refinance those unencumbered communities with lower leverage mortgage debt.
Our investor presentation, we listen to other fourth quarter sources and uses of cash to consider.
Turning to non development Capex, we expect to invest approximately $50 million in the fourth quarter. There are two factors for the increase from the third quarter.
Is the Delta variant hubs, we accelerated several capex initiatives to support occupancy growth.
And you've completed the majority of the landlord related projects and therefore, there will be less reimbursement in the fourth quarter My final fourth quarter insight as it related to government Cares Act grants.
We are pleased that the provider relief fund phase four was opened to some big changes in revenue and expense related to the second half 2020, and the first quarter of 2020 one REIT.
Quickly and efficiently submitted our application.
Our current understanding is health and human services will review all applications to determine the funding formula before making payments.
We are cautiously optimistic that we'll receive the phase four payment this year, but because of this potentially lengthy process. We have not included any relief in our fourth quarter outlook.
For the residents and associates as our top priority when I look beyond the fourth quarter horizon I have great expectations for our path ahead.
Our EBITDA growth potential is immense over the next few years.
With the fewest units under construction since 2015, there is a significant supply tailwind demand is rapidly increasing with more than 1 million new senior's entering their target market every year through at least 2030.
Even with the encouraging occupancy recovery that we've delivered over the past eight months.
Still have a significant opportunity for both topline growth and margin expansion.
The senior living industry.
Brookdale in particular is primed for future growth.
I will now turn the call back over to Cindy.
Thank you, Steve the health and wellbeing of our residents and associates is always our top priority I'm inspired by our everyday heroes and their efforts across our entire organization from community to corporate associates. Their dedicated efforts help keep us our number one choice and seniors.
Housing.
I'm pleased with the progress we've made from a business and financial perspective since the onset of COVID-19, and I look forward to our continued success, we have taken significant steps to support our operations and improve our liquidity in order to go beyond just weathering the storm to setting the foundation.
<unk> to advance brookdale into a firm position of strength and to accelerate future growth.
Thank you for joining us today, and I look forward to sharing our continued progress in the near future.
Operator.
Please open the line for questions. Thank.
Thank you.
Yeah.
Thank you Cindy if you would like to ask a question today you may do so progressing star followed by one on your telephone to keep up now and when the parents or ask a question. Please ensure that your phone is on mute locally.
My first question is from <unk> <unk> from Stifel. Your line will be open now if you'd like to proceed with your question.
Hi, good morning.
Congrats on the fast throughout the booster clinics. So I wanted to first dive a little bit into the <unk> guidance.
Synchrony suggests a sequential increase though maybe half a billion dollars to 5 million.
Just wanted to understand a bit more on the assumptions here I think Steve you mentioned that you expect occupancy growth to drive.
Higher adjusted EBITDA, but also acknowledged in normal seasonality. So how should we think about the range I'll pause and see if that would get you to the high end or the low end of that guidance and are there any assumption of any cost efficiencies are either on their own.
Syed on the G&A side for the.
Quarter.
Tom Good morning, and thank you so much for your questions. We are so excited about the progress that we're making on our COVID-19 vaccine clinics. Our team is just working literally around the clock to get our last clinics completed Steve I'll answer your question on the outlook.
Good morning, Tao So you're right. This is the first time, we've provided guidance.
Since the pandemic started which we're excited about on occupancy we do expect a sequential occupancy growth and that anticipate kind of a normal seasonal trends around the holidays now we do have four out of the six months of occupancy already in the books and we will continue to provide oh.
Occupancy updates each month for the rest of 2021, but you know kind of considering.
A relatively small even occupancy growth in November and December.
We'll get you to the occupancy growth rate.
From third quarter to fourth quarter that you can that you can model.
Right.
Just kind of taking through the revenue growth, we expect a REIT to be flattish to slightly lower on a sequential basis and then expenses.
We're still in a competitive labor environment, which is challenging and we expect to labor expenses to be slightly higher in Q4 now that said, we do believe the competitive labor environment to be transitory and we're starting to see some early green shoots in that regard so.
Net net we do expect occupancy.
Growth.
To drive higher sequential EBITDA higher NOI, and then that will fall through to EBITDA, if you assume kind of flattish to slightly better G&A.
Thank you.
Just wanted to understand a little bit more on the labor dynamics there.
Are there any differences that you are seeing in markets, where there's something back to employment unemployment benefits have and even those that have not and in terms of your new agency and over time using the fourth quarter do you expect that should be higher density Q or would that normalize a little bit.
Two.
Yeah. Those are really good questions Theres no question that the federal supplemental unemployment put a lot of pressure on our business in that a worker could in many cases make more sitting home on their couch than they could actively working what we saw after the federal supplemental unemployment.
And it is we saw an increase in application, we saw fewer people sort of dosing.
In terms of not providing accurate information for an interview or just not showing up for the interview now what we're seeing is the labor market is intensely competitive and the challenges throughout the economy are pretty pervasive the pressure really is and nursing staff as well as an hourly positions.
So we're responding to this very dynamic labor market appropriately, we're actively reviewing wages and adjusting them where necessary to remain competitive now our belief is that as we do that we will be able to reduce contract labor and overtime, but it's going to take a little bit of time.
And we still do expect to see those being elevated in the fourth quarter now if I look at sort of our turnover in hourly positions. We've made progress from the peak. So we saw improvement in September and that improvement continued into October so I do believe that some of the unemployment.
That's rolling off has been helpful to us.
And Ah, we are seeing just a little bit more pressure and urban markets.
But in our rural markets Theres, a smaller pool of talent.
Got you and one final question from me.
We're seeing for your residents.
Social security benefits is expected to grow five 9% I think that's the highest growth since 1982.
How do you feel about the ability to raise rates you know coming Gerry on your existing residents hopefully you can pass on some of the cost increases.
Thank you yeah there are.
Three factors that I think will help us increase rates I think you've mentioned, one which is our seniors are seeing increases in their monthly social security tax. That's important I think the second is that we're seeing occupancy and the industry firm up and when that happens it's much easier to.
Push rate and then third and finally with the cost pressures around labor the easiest way to convince a rise of that that our rate increases necessary is to explain to them that you needed to pay more to the people who are taking care of them and so those three things are key factors that will help us increase our rates as we go into our January 1st.
Rate increases.
That's great. Thanks for the color.
Thanks, so much.
Yeah.
Thank you. Our next question is from Josh Raskin from Nephron Research. Your line is now open. Please proceed.
Alright, thanks to span labor, but good morning Cindy.
What percentage of your facility operating expenses are labor and does that very much you know al versus IL or I guess, you know memory care I assume there's a little bit more there.
Yeah, as you would expect and IL that has the lowest percentage of labor because it's really a hospitality model and there's not the same level of personal care that you have and either assisted living and memory care and as you step up the care continuum from IL to al you have more in labor and then from a L T.
Memory care, you've got more on labor there, Steve if you want to talk a little bit about the percentage a question that's authorized.
You bet, Josh generally speaking, it's kind of in the 65% range, 65% to 70% range.
<unk> as a percentage of total Opex no. It's you can you can see that on page 10 of the supplement where we break out our labor expense.
I L a L and CCR see separate from Opex.
And you'll see the.
As trends there.
Perfect perfect.
And then you know you mentioned construction and I think you know six year lows and that sort of stuff, but I am curious if there's any anecdotal discussions in specific markets. Do you think that there are signs that developers are looking for kind of what what I'm. What do you think the next steps there are because to your point you know demand seems to be coming back and that typically.
Lists more construction.
Yeah, if I, if I look at sort of the industry and at Brookdale, what I'm really excited about for Brookdale is it starts around our communities were down 88%.
They are lower than the peak and so I think that is something that is incredibly good for us and present a tailwind for us for the next two years I also think that some of the inflation that we're seeing in the labor pressures that we're seeing will also make it harder for sort of new projects to get completed because if you think about the VAT.
You have having pre existing portfolio, which we do that's already priced in the cost of building a community is going up every single day with with labor inflation and there are supply chain disruptions that are preventing materials from being delivered on a timely basis and try to get workers to do the work. So all of those things I think.
Are going to play to our favor and strengthen the tailwind for the future.
Gotcha, Yeah that makes sense I hadn't really thought about the construction labor component of that and then obviously, we've got a staff.
Facility as well, so maybe maybe that slows things down for a little bit and then just lastly on the vaccines I heard two numbers I heard a 95%, but then I heard a 90% of eligible employees I'm curious what eligible employees means and then do you have data at this point now you know we're a couple of quarters out in terms of.
You know moved in or close rates or you know sort of success rates for highly vaccinated communities versus ones, where there's a couple of holdouts.
Yeah, let me start by saying the 95% of residents is that's a 100% of the resident population and are over 90% as of this morning with 94% when I checked it just before I came in of eligible associates and what that means if we take out the very small percentage of people who are.
Already have an approved religious or medical exception.
So we're just finishing the last stages of our vaccine mandate. We're grateful that we are ahead of.
The government requirements that apply to workers over 100 or companies with over 100 workers.
So I think we're in great shape as it relates to the vaccine mandate, what we've seen is that prospects.
Residents have and appreciation for highway vaccinated communities and that's been good for US I don't have specific numbers to share with you, but I can say that our vaccine mandate is good for our residents and our associates.
Gotcha, and I'm, sorry to squeeze in the last up to 94% of the eligible employees, what what percentage of your employees are not eligible through medical or religious exemption.
It's a very small percentage very very small.
Okay.
Okay.
Okay. Thank you thanks very much Josh.
Our next question is from Brian <unk> of Jefferies.
Your line is now open if you'd like to proceed with your question.
Good morning, Brian Good morning, good morning.
My question for you.
Just more strategically or philosophically you have for the longest time you held your ground on rates and no longer seeing the Rev. Core declined sequentially in Q3, just wanted to hear your thoughts on that.
The shift in thinking there and how we should be thinking about your ability to or interest in holding price going forward. If this is a one quarter aberration or if this is more of a.
A dynamic trend.
Yeah, I don't think so at all a shift in strategy. Our strategy is always to get every unit in service at the strongest rate possible. What we do recognize however is that there is a fine balance between driving occupancy and driving rate and so if you're in an environment that is very competitive it may be necessary to.
He is a discount to grow occupancy and so what we've seen in particular is independent living has had a little bit more disruption and sort of the prospects that are coming to that portion of the industry, but it also had higher occupancy because it had a longer length of stay so we've been very targeted in the third quarter as.
Always about when to use a discount so that we can try to drive the highest possible revenue per available room.
Yeah.
Got it and then because I would think about staffing.
No.
Beat a dead horse here, but.
Do you think that the cost structure has reset now and this is the right baseline to be using or is this a temporary kind of like bonus driven or kind of artificially inflated that number that should revert back to a more normalized level over time.
So when I think about it and Steve will add some things to it I think that the number has a lot of variables in it right and I do think that the base wage the hourly rate of workers will be higher.
In 2022 than it is in 2020, one, but I think there are some things that will offset in part of that higher wage increase and one is contract labor. We have used more contract labor in 2021 than we historically have because of the extra pressures put on our team because of Covid.
<unk>, whether it was the vaccination clinics, whether it was a special resident care areas or whether it was just the.
Disruption caused by the economy restarting, so that's driven and contract labor and overtime I also think that with turnover being higher really in the second quarter and the first part of the third quarter that caused us to do a lot more training hours and I think as we get our retention back.
Two retention and turnover back toward historical norms will have fewer hours that we have to use for that training that just comes from bringing new people on board, but net net our labor will grow and in 2022 relative to 2021, but there's a lot of things happening underneath that that number.
Number.
Got you and then last question for me with all the puts and takes me since as you called out.
Your expectation for labor next year.
Without giving guidance I mean.
Do you think that Brookdale will be able to grow EBITDA in 2022 versus 21.
Yeah. Good morning, good morning, Brian.
So you're right without giving a without giving guidance I can give you some top of the waves for 2022.
We believe occupancy it will grow in 2022.
Poor.
Is.
Is expected to increase it really too as we've already discussed to reflect the inflationary environment, where in which means a higher than average rate increase and Cindy gave you three reasons why we should expect that.
And as far as expenses go.
Mentioned that the labor expense, we expect to be transitory that said.
We do have wage pressure due to the tight.
Tight labor market, but we do expect that Cindy just mentioned to be partially offset by lower contract labor expense, which is already in our run rate. So a lot of puts and takes.
But we do expect EBITDA to increase in 2022.
Few months of course, I'll give you more details on the 2022 Guy Yeah, and Brian just to add just a little bit of context behind what Steve said and I see how their fall conference earlier. This week, we didn't I didn't attend I should say, but out of the industry articles that came out of it. It seems like there was a pretty widespread discussion.
The need to have higher rate increases in 2022 than they traditionally have them for a lot of reasons, including labor. So I don't think we're the only people thinking about how to increase rate in 2022 given sort of the environment that we're operating in.
Awesome. Thank you guys.
Thanks, Brian.
Thank you Brian. Our next question is from Steven Valiquette from Barclays. Steven Your line is now open. Please proceed.
Good morning, good morning, everybody.
Good morning, So I think at this point every critical topics then touched on here, including the last question kind of hit on what I wanted to touch on but just to follow up anyway.
Yeah, I was surprised by your comments around the you know still having rate pressure in the industry and <unk>.
'twenty one.
Made that comment that when occupancy is firming up.
So it's a better environment for rate increases across the industry. My thought was that we've already seen occupancy firming up for six months already.
That pricing would have been more rational already that's all fine. There's no question. There I guess my question really at the end of day is what you just touched on a little bit as you know is there a sense for operators that there could be just kind of a sea change in the mentality from calendar 'twenty one the calendar 'twenty two at the end.
Three is sort of in the process of setting rates for 22, right now at least for renewals et cetera.
Could there be a change and then maybe just to be more direct about this if you had to predict right now what you think the senior housing industry Rev.
Our revpar growth will be in 'twenty, two versus 21, what number of range would you put on that right now for 22 for the industry.
Okay that is a very direct question, what I'll say is that I'm optimistic about a strong revpar growth rate and the reason that I'm optimistic is because I do think the industry will have above average occupancy growth in 2022 quite honestly, we have lower occupancy.
Then than we traditionally have had and there are a lot of reasons to believe that occupancy will grow the supply environment is better because there's less supply the demand environment is better because starting next year, there's at least a million new potential.
Potential customers in the market for Brookdale, our brand awareness is high because we've got two times. He unaided brand mentions as our next closest competitor and we've got really high customer satisfaction as evidenced by the J D. Power Award. So I think in the industry, you'll see occupancy growth, but I also think rate is going to grow for all.
The reasons that we've talked about so without giving you a specific number I do expect strong revpar growth in 2022, and I think it will be one of the best years in and the industry's history.
Okay, Alright, that's helpful. Thanks.
Thanks Steven.
Our next question is from Joanna <unk> from Bank of America, China. Your line is now please proceed.
Thank you for taking the question here. So if I may just a very last one a follow up on that on the labor cost discussion and.
Staffing so I appreciate the commentary that you think it's transitory, but anyway for us to.
Get a better sense of the.
The magnitude of things here in terms of how much of your labor cost was contract labor versus overtime, just so you're going to get a sense you know how.
How we should think about.
Kind of you know that those numbers kind of normalizing. It maybe you know maybe you can frame it to us.
This compares to historical cost sounds like you. You know you you would have used contract labor to some degree, but obviously now it's much higher so kind of any framework around those metrics would be helpful.
Hi, Good morning, Joanna I can say that we've never used as much contract labor as we have in 2020, one and that is due to all the factors that I mentioned earlier stages.
Steve is there anything that you want to add to join up question, Yes, Joanna we we kind of bucket higher than normal overtime and contract labor and maybe kind of in the same.
Bucket, if you will.
And that needs to be replaced by regular.
Productive work labor hours. So, it's that's less of a detail that.
Look at I look at it just over and above regular predictable productive labor hours.
I can.
We'll give more details I think for 2022 coming up.
During the fourth quarter earnings call.
Okay that makes sense I guess any quantification in terms of like you said, you know was it like 5% or 10% of your labor costs or any way you can frame it that will be helpful.
So thanks for that I guess, we'll look.
Early next year to talk about this again back down and my other question was.
Capex, so I understand that you're working on your budget for next year, but anyway.
Or or any kind of framework.
Sometimes it's capex outlook for next year, because it was so you know you.
You continue to expect the $140 million for this year for non development Capex, but then it sounds like the development Capex was lowered so are there some projects being pushed out into next year and what are these projects are you expecting acceleration in either of these buckets for capex. Thank you.
You bet Joanna.
I want to remind everyone that this is the first time, we're giving guidance on the fourth quarter, but.
That said I will talk a little bit more about 2022.
Just kind of top of the waves on our Capex.
Non development, we expect our 2000 to 2500.
Capex net of landlord reimbursements.
Per unit in 2022 as far as the development Capex, we're still.
Kind of identifying the projects that will go under that.
That project umbrella.
Again more to come on that number.
As we turn the calendar.
Alright, thank you.
Thanks Joanna.
Thank you John our next question is from Frank Morgan from RBC Capital markets. Frank Your line is now open.
Good morning, good morning.
How are you.
So my.
Question sticking on the rate increases going forward I am curious if any of you all could.
Maybe look back at precedent here in past cycles, where you were able to raise rates.
Kind of in the early part of the cycles, what kind of effect that had.
You know in terms of.
What's the impact on Occupancies for in place residents.
Was there much of a loss of occupancy when that first occurred or just do you have any color on that I'm trying to remember back when that would've been in I'm thinking back maybe in the early two thousands early really early two thousands, but any reminders would be great.
Yeah, Frank we have always been very successful of passing along rate increases without having a lot of attrition problem in place rather than and I think that has been pretty consistent whether it's a higher or a lower rate increase because what we're trying to do when we sat rate is we're trying to say what's the fare increase.
Right, what's right for the resident what's right for the business and because of that approach and because we train our executive directors to have a discussion about the rationale behind the rate increase we generally don't see a significant attrition for a rate increase.
Got you and then I guess back on.
On the cost side, obviously, we know labor is front and center.
But are there any other emerging cost inputs, you're seeing where you're seeing a pickup in.
Uh huh.
And inflation.
Okay.
Oh, no not kind of across the board Frank.
Over the past couple of years, we've seen some insurance pressure.
But this year is not going to be any different than that and it might be a slightly better into 2022, just given the hurricane season.
And then.
That's.
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It all boils down to our labor.
Got you.
Okay.
Is it is it not.
Yeah.
Okay.
Got you and then I guess, just trying to get my head around this contract labor issue.
In terms of the opportunity of that in your cost structure as that comes back down as there is or maybe I missed this but is there any kind of.
Dollar amount a framework that youre, saying youre above what you think you would be at a normal times that we can kind of consider as we start thinking forward. Thanks.
I think the important thing is that it's going to offset the reduction in contract labor should offset some of the labor pressure that we're seeing from wage growth into 2022. Good question Frank.
Thank you.
Okay.
Okay are there any more questions I don't think there are so I want to thank you very much for joining our conference call today and for your interest in Brookdale I hope that everyone has a wonderful weekend and we look forward to talking to you all soon.
That concludes our call.
Okay.
This concludes the conference call and you may now disconnect your lines.
Okay.
Yeah.
Uh huh.
No.
Okay.
Okay.
Yeah.
Yeah.
Okay.
Okay.
Okay.
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Okay.
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