Q3 2024 Brookdale Senior Living Inc Earnings Call
Our guidance also includes approximately $3 million, the fourth quarter hurricane expense, as approximately 70 of our communities were impacted.
This level of expense has a meaningful impact on our results, but supporting the safety and well-being of our residents and associates is worth every penny. This is our overarching priority and is at the core of everything we do.
I'm excited to share some updates about our Brookdale Health Bus Program, which also directly supports our overarching goal of the health and well-being of our residents and associates.
As I've mentioned before, HealthPlus is an innovative care delivery model designed to support and enhance quality of life for our residents through technology-enabled, evidence-based preventive care coordination.
It focuses on addressing the unique needs of seniors with chronic conditions by coordinating care and minimizing gaps, which are unfortunately common in the aging population.
Recently, we received results from an expanded third-party analysis focusing on communities that have been on the HealthPlus platform for at least 12 months.
The findings were incredible, showing that we have built on the success of Health Plus, including 80% fewer emergency room and urgent care visits, and 66% fewer hospitalizations compared to seniors living at home.
In fact, our resident outcomes in HealthPlus communities were even stronger when compared to the outcomes for similar residents in other senior living communities within the industry, according to an independent analysis.
These results reaffirm our belief that Health Plus provides a key competitive advantage for Brookdale, and its positive impact will grow even further.
As you can see, we continue to make progress on enhancing operations, but our focus on value creation for our shareholders doesn't stop there.
At the close of the third quarter, we were very pleased to announce a series of accretive transactions.
These included agreements to acquire 41 communities from three existing triple net lease portfolios, a private convertible senior notes transaction through exchange and new issuance, and a favorable rate agency financing transaction with simultaneous repayment of a 2025 debt maturity.
Specific to the planned community acquisitions, by replacing future lease obligation with more favorable ownership structures, we are increasing our cash flow, reducing exposure to escalating lease costs.
benefiting from long-term value creation opportunities and gaining greater strategic flexibility to manage our portfolio.
Overall, the communities we are acquiring are high-quality assets with above-average performance in good markets, many of which are high-growth, affluent markets.
We have confidence in these communities and have proven that we can successfully generate and sustain value from them.
As a result, ownership of these communities allows us to take full advantage of the senior living industry's positive growth outlook, enhancing our expected financial results with predictable high-yield returns.
Specific to the convertible financing, by extending the vast majority of our 2026 senior notes to 2029 at a higher conversion price,
and by securing additional funding through newly issued 2029 notes with two of our key shareholders, we are able to support these unique acquisition opportunities with favorable capital market terms.
These immediately accretive transactions are expected to increase adjusted EBITDA by approximately $33 million annually and improve adjusted free cash flow by an estimated $15 million annually following closing.
Lastly, on our February earnings call, we will be providing 2025 annual guidance, but I wanted to take a moment to introduce some early perspectives for next year.
We are unwavering in our commitment to profitable growth and to achieving consistent, positive, adjusted free cash flow. Our strategy has consistently prioritized long-term objectives and progressing towards the meaningful organic growth opportunity that lies ahead.
We can achieve this opportunity by remaining intensely focused on our key strategic priorities, which allow us to navigate short-term fluctuations with a clear and consistent framework for long-term success.
For 2025, our strategic priorities will remain. First, get every available room in service at the best profitable rate.
Second, attract, engage, develop, and retain the best associates. And third, earn resident and family trust and satisfaction by providing valued, high-quality care and personalized service.
In 2025, we will maintain our ongoing commitment to appropriate expense management at both the community level and at our community support centers, while ensuring we continue to meet our residents' needs, provide high-quality care and services, and remain in compliance with applicable regulations.
These are just a few of the high-level considerations that support our expectation that, like 2024, 2025 will be a year of adjusted EBITDA growth and meaningful adjusted free cash flow improvement.
I am confident in Brookdale's strong positioning for meaningful long-term growth, particularly as we make further progress toward restoring pre-pandemic occupancy levels.
This confidence is driven by favorable supply-demand dynamics, our continuous improvements in operational performance, and our resilient business model.
Additionally, Brookdale Competitive Advantages uniquely positioned us to capitalize on the unprecedented target demographic growth ahead.
As demand for our communities and services grow, we expect this to fuel significant growth in operating income and create long-term value for all stakeholders.
I'll now turn the call over to Dawn.
Dawn: Thank you, Cindy. Good morning, and thank you for being here today. I'm proud of our many accomplishments that Cindy spoke to, and would like to provide additional color on several items, including our third quarter results and fourth quarter expectations.
Dawn: Beginning with third quarter revenue, residency revenue grew 3.7% over the prior year quarter.
Dawn: This revenue increase was despite a 2.3% or approximately 1,200 unit reduction in capacity since the beginning of the prior year quarter as a result of community dispositions, primarily through lease terminations.
Dawn: This marked our 11th consecutive quarter of triple-digit year-over-year occupancy increases
Dawn: And compared to the second quarter, occupancy grew 80 basis points sequentially.
Speaker Change: As Cindy shared, our move-ins remained pressured in the third quarter, but we were very pleased that our third quarter move-out volume was better than both prior year and the second quarter, driven by continued favorable controllable move-outs.
Dawn: Specific to our same community portfolio, third quarter REVs PAR increased 5.6% over the prior year, driven by a hundred basis points of occupancy growth and a 4.2% increase in REVs POR.
Dawn: We were pleased that our year-over-year same-community Rev 4 growth accelerated 10 basis points from the second quarter growth, while the industry-asking rent growth over the prior year period decelerated between the second and third quarters.
Dawn: Moving to expenses, same community labor expense as a percent of revenue improved 140 basis points compared to the prior year third quarter. This positive performance versus the prior year was a result of lower premium labor expense.
The favorable flow-through of top-line growth given the fixed-cost nature of our business and the continued benefit of improved turnover which results in longer tenured associates who become naturally more proficient in their roles.
Third quarter same community other facility operating expense as a percent of revenue was 40 basis points higher than the prior year, largely driven by elevated estimated insurance expense and the outsource of our data centers.
Dawn: both of which have impacted each quarter of this year, as well as normal inflation. As a reminder, the data center's outsourcing is neutral from a cash flow perspective.
with our continued commitment to appropriate management of our expenses.
Dawn: We once again deliver double-digit adjusted operating income growth and triple-digit adjusted operating income margin expansion within our same community portfolio, while continuing to meet our residents' needs.
provide high quality care, and maintain regulatory compliance.
Dawn: In fact, we have now delivered three years of consecutive quarters of year-over-year adjusted operating income growth, moving beyond community-level expenses.
Dawn: Third quarter general and administrative expense, excluding non-cash stock-based compensation expense, was flat as a percent of revenue to the prior year, third quarter, and reflected a modest step down from the second quarter on a dollar basis.
Dawn: Lastly, cash operating lease payments were $64 million, generally flat to the second quarter and to prior year. These financial results culminated in third quarter adjusted EBITDA of just over $92 million.
Dawn: I'd like to take a moment and note four important considerations when comparing our third quarter adjusted EBITDA sequentially to the second quarter.
Dawn: First, the third quarter includes an incremental day and an incremental holiday, which results in higher expense, most of which is labor, with only a minor favorable impact to revenue.
Second, the third quarter has higher seasonal utility expenses.
Dawn: Given the hotter summer months compared to the milder spring months,
particularly this year with extreme heat in the quarter. Third, our marketing shift from paid third-party referral sources to internal channels, while having no cash impact to this year, did result in higher third quarter marketing expense.
Dawn: And fourth, our third quarter included approximately $1 million of expenses related to Hurricanes Beryl and Debbie. In aggregate, we estimate the impact of these factors has been roughly $11 million when comparing the third quarter adjusted EBITDA to second quarter adjusted EBITDA.
Dawn: In the third quarter, we generated a positive $14 million of adjusted free cash flow, which was $11 million higher than prior year.
This year-over-year increase was driven primarily by our adjusted eva-dog growth
Dawn: partially offset by continued higher interest expense. As of September 30th, total liquidity was $324 million, which reflects a $16 million cash outflow related to the 2025 debt refinancing that closed prior to the end of the quarter.
Dawn: This liquidity level does not reflect the closing of our convertible senior notes due 2029 offering, which was announced on September 30th and closed subsequent to the quarter end.
Dawn: On September 30th, we announced five separate transactions, which I'll summarize into three groupings and then provide individual details of each.
Dawn: First, a private convertible senior notes transaction, including an exchange and new issuance of notes.
Dawn: Second, the planned immediately accretive acquisition of three separate currently leased triple net portfolios
Dawn: which in aggregate include 41 communities, or 2,789 units, and supports our ownership strategy. And third, the completion of a new agency financing and concurrent repayment of a 2025 debt maturity.
Dawn: Regarding the first, through private transactions we exchanged 207 million dollars of our convertible senior notes due 2026 for convertible senior notes due 2029.
Dawn: This exchange had many benefits, including largely extending our debt maturity runway until 2027 and increasing the conversion price on the exchange notes from $8.10 to $9.
Dawn: As part of these private transactions, we issued an additional $150 million of new convertible senior notes due 2029, which provide funding for our planned acquisitions at an attractive rate.
Dawn: The net cash proceeds of this transaction were approximately $135 million dollars.
Dawn: We were very pleased to enter into these private transactions with multiple large shareholders and are appreciative of their strong partnership and support of Brookdale. Regarding our planned acquisitions.
Dawn: For a combined purchase price of $610 million, we plan to acquire communities from three separate, currently leased portfolios.
Dawn: In addition to the proceeds from the issuance of our 2029 Convertible Senior Notes,
Dawn: at a 4.92% fixed rate, additional non-recourse agency mortgage financing uncertain of the assets, and the use of cash on hand which we estimate will be approximately 50 million dollars. We expect the close of the transaction by year-end.
Dawn: We expect annualized adjusted EBITDA to increase $33 million with the initial quarterly benefit of that occurring within the fourth quarter and reflected in our guidance, which I'll speak to shortly.
Dawn: And following the closing, these transactions are expected to be immediately accretive to adjusted free cash flow.
Dawn: On a cash basis, we expect to annually reduce cash lease payments by $47 million and improve annualized adjusted free cash flow by $15 million, each beginning in 2025.
Dawn: This is following considerations for financings and the resulting interest expenses.
Dawn: The positive impact to adjusted EBITDA begins earlier than the positive impact to adjusted free cash flow due to the change in lease classifications that occurred upon the signing of the purchase agreements.
In addition to the immediate financial benefits,
Dawn: These acquisitions will benefit Brookdale and our shareholders over the long term as we strategically position ourselves to capture upside from the powerful senior housing tailwinds.
Dawn: grow our portfolio ownership position while also improving our flexibility to recycle capital and secure high-yielding, predictable returns through replacement of more costly and increasing lease structures with lower-cost fixed-rate capital.
Dawn: Lastly, regarding our closing of new agency refinancing and repayment of existing debt.
Dawn: We obtained a $182.5 million agency loan through Fannie Mae, which matures in 2029.
Dawn: The loan is secured by non-recourse first mortgages on 16 communities, bears interest at a fixed rate of 5.67%, and is interest-only for the first two years.
Dawn: We used proceeds from the $182.5 million loan to repay a $197.1 million loan, which had a weighted average fixed and variable rate of 6.8% at the time of repayment, and which was set to mature in September 2025.
Dawn: With this transaction, we successfully cleared all of our debt maturities without extension options through 2025, and when coupled with the convertible senior notes transaction, we cleared the runway of all non-extendable debts with the exception of $43 million through the end of 2026.
Dawn: We're very pleased with the outcome of each of these transactions and believe that they are examples of our continued proactive management of liquidity, capital structure, and capital allocation for the benefit of our shareholders.
Dawn: Lastly, I'd like to speak to our fourth quarter guidance. In yesterday's press release, we guided to fourth quarter REV PAR growth of 5% to 5.5% over the prior year and adjusted EBITDA on the range of 93 to 98 million dollars.
Dawn: We expect 4th quarter weighted average occupancy to be higher sequentially than the 3rd quarter.
Dawn: We believe that the fourth quarter year-over-year REVPOR growth will be relatively in line with our year-to-date growth trend. When comparing our fourth quarter adjusted EBITDA expectations of $93 to $98 million to the prior year fourth quarter,
Dawn: There are four key considerations. First, the meaningful year-over-year resident fee revenue and resulting adjusted EBITDA benefit associated with our fourth quarter REVCAR growth expectations.
Dawn: Second, year-over-year expense growth associated with broad inflationary pressure, higher estimated insurance expense.
Dawn: Third, we expect approximately $3 million of hurricane expense related to the community-level damages from Hurricanes Helene and Milton. And fourth, the immediately favorable adjusted EBITDA impact of our recently announced acquisition agreements
Dawn: which in the fourth quarter will reduce cash operating lease payments by approximately $8 million. All of these year-over-year considerations have been incorporated into our guidance range.
Dawn: As it's also useful to compare our fourth quarter expectations sequentially to our third quarter adjusted EBITDA results,
I wanted to provide a similar bridge.
Dawn: The midpoint of our fourth quarter REV-PAR guidance range results in a slight step down in REV-PAR on a dollar basis from the third quarter to the fourth quarter. This reflects the occupancy and REV-POR expectations that I provided a moment ago.
Dawn: Two other factors impacting our sequential performance expectations are the unfavorable hurricane expense and the favorable seasonal utilities expense. These two factors roughly offset one another, but are important to note nonetheless.
Dawn: Third, as we approach our year-end, we get better visibility into employee insurance and benefits.
Dawn: With those generally running higher this year, we've included that expectation in the fourth quarter.
Dawn: And lastly, similar to the year-over-year comparison, our fourth quarter adjusted EBITDA will benefit sequentially from the $8 million favorable impact as a result of our recently announced acquisition agreements.
I'll now turn the call back over to Cindy.
Cindy: Let me close by expressing my deep gratitude to our associates in our communities, our field leadership, and at our community support centers. I am so proud of the way that they unite to support our residents, one another, and our shareholders.
Cindy: I am especially grateful for their focus on ensuring that throughout the four major hurricanes we've faced over the past four months,
Cindy: The safety and well-being of our residents remained the top priority.
Dawn: With countless stories of devastation caused by these storms, including with our own Brookdale Associates and the families of our residents, we successfully evacuated more than a thousand residents and their pets during Hurricane Milton, and we were pleased to be able to bring them home within days of the storm.
Dawn: The success of these efforts is a result of our industry-leading emergency response team and our community and field associates for the meticulous planning, exceptional crisis management, and commitment to our residents.
Dawn: Every day, I am proud to be one of Brookdale's 36,000 Associates dedicated to serving our mission and working to ensure a long and purpose-driven future for our residents and teams of Associates.
Speaker Change: Great, thank you so much. At this time, we will open it up for questions. I would like to remind everyone, in order to ask a question, press star and the number one on your telephone keypad. And we will take the first question from Ben Hendricks with RBC Capital Markets. Your line is open.
Speaker Change: Hi, this is Mike Murray on for Ben. So a lot of moving pieces with these recent transactions So just so we understand you
Speaker Change: kind of walk us through the income statement. It sounds like the lease reclassification is kind of a one-time benefit of $8 million in 4Q EBITDA with a corresponding increase in interest expense. And you don't expect that to impact 2025 numbers.
Is this the right way to think about it?
Speaker Change: Hi Mike, this is Dawn. Thank you for the question and as it relates to Q4, that's exactly right. The eight million dollars is kind of a timing difference.
Dawn: of a benefit to adjusted EBITDA with a corresponding increase in our interest expense.
Now, as we said in our prepared remarks...
Dawn: What we would expect is a $33 million increase in adjusted EBITDA as those rent payments go away.
Dawn: and then we would expect to see an adjusted free cash flow pickup of $15 million kind of replacing those lease payments with the interest expense from the debt that we would use to, that we would use to finance the acquisitions from.
And that's compared to the amounts pre-agreement.
Speaker Change: Okay, all right, that's helpful. And just shifting gears, could you dive into the competitive dynamics for the third-party referral sources that were pressured? Was this primarily a cost thing? Are you bidding against other competitors for these referrals? Thanks.
Thanks.
Speaker Change: Mike, this is Cindy. That's a good question. And no, it's not a cost thing.
Speaker Change: Just to give you perspective, we talked about in our second quarter call and again in our third quarter call the fact that our move-ins associated with our third-party paid referral sources, two of them in particular, were relatively soft relative to our historical trend.
Speaker Change: And once we identified this trend, we took action to launch incremental sales initiatives, increasing our internal planned marketing spend, and those actions have begun to yield results.
Speaker Change: Well, our move-ins during the third quarter were still down relative to last year. The performance did improve sequentially.
Speaker Change: And if you think about this on a year-to-date basis, our move-ins are consistent with our pre-pandemic averages, despite the weakness in the two large third-party paid referral sources. Just to give you some context,
Speaker Change: We get a few hundred move-ins every month from two large paid referral sources.
Speaker Change: which we've been working hard to offset. I'm really pleased that during the month of October, our move-ins from these two large third-party referral sources were roughly flat to last year. And just one other piece of context is one of the two third-party referral sources
Speaker Change: Their volume is just down and every person is impacted and with the second, we did actually improve our position within the third quarter and so we're pleased with that.
All right, that's helpful. Thank you. Thanks, Mike.
Speaker Change: Your next question comes from the line of Brian Tanquillet with Jeffries. Your line is open.
Brian Tanquillet: Hey, good morning. Maybe, Cindy, just to follow up on that, so
How should we be thinking about this strategy with these...
Speaker Change: Third-party referral sources, you know, clearly you're spending more money on marketing here. So is that kind of a shift in strategy or is this more temporary with the marketing spend? And then what sort of timeline are you thinking in terms of the ability to return back to more normalized referral patterns?
Speaker Change: I was pleased that in the month of October we actually were essentially flat year-over-year with our paid 30-part e-referral sources in the aggregate, so I think that was a good thing.
Speaker Change: And I do want to be clear that we're not spending more cash because we pay for a move-in from a third-party or paid referral source when the resident moves in, there's a difference in timing. When we do our own internal marketing, we have to spend the money and then work the lead and get the move-in, which lags. So it's the same cash, it's just different accounting. The marketing spend on internal is expensed when you incur the marketing, and for an actual
Speaker Change: Our strategy is to get every one of our rooms in service at the best profitable rate. So we want to get more referrals.
Speaker Change: And we want to have those residents move into our communities.
Speaker Change: So, it's a both-and. Our strategy to try to recover is because we're seeing less volume than we had wanted or expected or historically seen, and so we're responding to a third-party environment.
Speaker Change: Got it, totally understand. And then maybe shifting gears, as I think about your REVPAR guidance, you know, 5-ish percent for Q4, curious what you're seeing in terms of the competitive environment or the pricing environment, and then how are you thinking about, you know, rate increases, rate bumps for 2025?
increase that sequentially.
Speaker Change: And kind of in the normal course, a rev poor is expected to decline sequentially. We typically will see that.
Speaker Change: As you have a higher acuity resident move out and then you have a lower acuity resident moving in and then in addition We've been looking at and kind of doing repricing in certain markets as we've been
Speaker Change: looking at remaining competitive throughout the year. So that is the expectation for our REV-PAR guidance.
Speaker Change: Now, as far as 2025, we aren't giving guidance for 2025 yet. So, you know, I think we've, Cindy said in her prepared remarks, we'll come out next quarter with our guidance for 2025.
And just to be clear, when Don's talking about Q4, we're expecting to hold that 4.3% year-over-year REVPOR growth. And I'm really proud of the fact that when the industry decelerated their REVPOR in Q3, we improved our REVPOR growth.
year-over-year.
Got it. Perfect. Thank you.
Thank you.
Speaker Change: Your next question comes from the line of Joanna Guyick with Bank of America. Your line is open.
Joanna Guyick: Hi, good morning. Thanks so much for taking the question. Sorry, I joined late, so I wasn't sure whether this was discussed already when it comes to the Q4 guidance rate, and if you adjust out the $3 million hurricane cuts, but then there's also the $8 million change in lease expense. I don't know if you guys discussed that, because if you adjust that, the guidance implies EBITDA would actually decline sequentially to $2 million. So what's
Joanna Guyick: driving that the question of the crime versus historically Q4 EBITDA would increase from Q3.
Joanna Guyick: Yeah, thank you, Joanna. This is Dawn. I appreciate the question, and you're exactly right.
Speaker Change: We are very proud of, is if you take a step back, is our 15% year-over-year just a little bit of growth.
Speaker Change: and the fact that we're within 5% of pre-pandemic adjusted EBITDA.
Speaker Change: and we've delivered 31% adjusted free cash flow growth this year. And as we think about the fourth quarter guidance...
We just talked through kind of the REV-PAR growth that we expect, and at the midpoint, our REV-PAR would be flat sequentially.
Speaker Change: It's driving kind of the top line flat and pressured with the move in Cindy had talked about in her prepared remarks.
Joanna Guyick: But taking one step back, our total operating expense is $548 million for the quarter and 1% of that is about $5 million. So that level of variability, as you think about sequentially during the quarters, it's just not that material.
Joanna Guyick: You know, what we're most proud of is if you look at our same store operating margin, we've delivered 140 basis points of operating margin growth year over year.
Thank you.
Speaker Change: Okay, so I guess you're saying that there's just variability. So, historically, EBITDA would increase fourth quarter.
Speaker Change: from third quarter but this year you're kind of giving yourself more room or is there something else to call out that that would
explain that kind of lower seasonality versus history.
Speaker Change: Yeah, I think one of the things that I would point to that we, you know, we look at, we look at our expenses across and estimate, you know, with the variability, but we have higher insurance and some employee health costs that have been running higher this year over last year.
Speaker Change: And so, you know, just as for maybe a little bit of context around that variability.
Speaker Change: Okay and I don't know maybe you mentioned this before but what does the guidance assume for occupancy growth? Last year I guess occupancy grew about 80 beds sequentially. So do you expect single growth? Sounds like probably not.
Speaker Change: Yeah, what we said about occupancy is we expect it to increase sequentially and so I would just, what I would, what I would think about is, Cindy just mentioned it, is that our year-to-date REVPOR growth
Speaker Change: that you'll see our year-to-date growth has been 4.3 percent. And so kind of triangulating into from the REVPOR and then triangulating into occupancy, you'll see you can kind of get to how we're thinking about occupancy growth.
Speaker Change: Thank you. And for my last question, so if you're thinking about next year, I know you don't give guidance, but just staying on AHRQ.
Speaker Change: So far this way, this year, occupancy has been growing above historical seasonality. So is it fair to assume a similar trend to next year and, you know, what could drive it higher or lower from here? Thank you.
Speaker Change: and I are going to be talking about the flow growth of 30%. We would expect to continue to deliver growth, but not giving guidance at this time.
Thank you.
Of course. Thanks, Joanna.
Speaker Change: And as a reminder, if you would like to ask a question, please press star and the number one on your telephone keypad. Your next question comes from the line of Josh Raskin with Nefron Research. Your line is open.
Speaker Change: Hi, thanks. I appreciate you taking the call. Good morning. So, just back on to these two third-party marketing firms, it sounds like they're getting less referrals. Is there something changing industry-wide? Are competitors doing more internally or is it just harder for them? I'm just curious what's going on with these two major aggregators.
Speaker Change: So, big picture, one of the things that happened was there was a Google algorithm change that deprioritizes third-party content. So we think that they are getting less leads just organically, which is one of the things. And that is affecting one of the two very significantly, the other not as much.
Speaker Change: Okay, the other one just not, maybe just, you know, just simply not seeing the same level of referrals.
Yes, they have reduced some of their marketing spend.
Speaker Change: And so, where are these people getting, you know, where do these leads end up? Are these people self-finding, you know, are they finding your communities on their own using this new, you know, with the change of the Google algorithm, or do you think there's just fewer move-ins industry-wide because of this disruption?
Speaker Change: No, I think absorption in the industry is strong, and I would say that the vast majority of our move-ins do come from internal sources.
Speaker Change: Whether it is residents who live in a community and refer a friend to move in with us
Speaker Change: whether it is our own internal marketing campaigns or local community outreach, that's where the majority of move-ins come from.
Speaker Change: But, as I mentioned earlier, we did historically get several hundred move-ins a month from these two third-party referral sources. So we're really just resetting our strategy to capture that. I think over the longer term.
Speaker Change: At the end of the day, the more people who come to us directly, the better off it is for the relationship with us and the residents and prospects.
Speaker Change: Sure, sure. And then separately, can you speak to the competition and maybe the discounting environment and how that compares to what you were seeing last year as you headed into year end?
Speaker Change: I'll say that the discounting has been, it's been a little heavier sort of I would say in the third quarter than quite honestly we expected and I do think that the presidential election maybe had something to do with it.
Speaker Change: One of the things that our Chief Sales Officer tells us regularly is when there's uncertainty, prospects, older Americans in particular, are more reluctant to make decisions. So I do think there might have been some additional last minute discounting in the third quarter.
Speaker Change: leading up to the presidential election. The good news is the election's over now and there's more certainty about the direction of the country and so that should bode well for us and others in the industry moving forward.
Okay, that makes sense, thank you.
Thank you.
Speaker Change: And your next question comes from the line of Tauchow with Macquarie. The line is open.
Thank you.
Speaker Change: Thank you. Good morning. I appreciate the earlier details on the guidance. I want to drill down on the adjusted free cash flow number.
Speaker Change: which was very strong in the third quarter. So looking forward, Cindy, sounds like you expect significant free cashflow improvement next year. I want to make sure I have all the moving pieces in order. I think you mentioned the $15 million free cashflow contribution from the acquisitions.
Speaker Change: I think you've got some lease restructuring down allowing to lean into your landlord partners on the CapEx side.
Speaker Change: maybe some additional cash flow upside from the Ventas transaction. Any other additional tailwind or headwind we should expect for cash flow? And then what is your confidence level that there will be kind of firmly in positive free cash flow territory on an annual basis going forward?
Speaker Change: So let me start and then Dawn can jump in. So we are committed to the Ventas assets through the end of December 31st, 2025.
Speaker Change: So unless there is a mutually agreed transaction, we would continue to operate the assets under the existing lease through then. So I wouldn't necessarily model that into your thoughts for 2025.
Speaker Change: One thing that could potentially have an impact is variable rate changes in interest rates.
Speaker Change: and so that is something that is about one point goes 13 million dollars so that's something that could have an impact on. Are there other things that you might want to highlight?
Speaker Change: No, I think I think you've captured all of them. I would just say remember our rate increase goes into effect January 1st and you know we're confident kind of the rollout of that rate increase. But other than that I think that the largest shifts that we're thinking about are in line with what you have.
Speaker Change: That's great. So, I want to go back to the comment earlier regarding strong clinical outcome you saw in the Alpha Plus and ClearBridge performance. I know this is something that would excel versus your competitors.
Speaker Change: At this point, I think the PMPM contribution is still negligible, given the growing scale this quarter.
Speaker Change: Are you seeing additional evidence that you have been successful in leveraging that into a sales pitch?
Speaker Change: or premium pricing, any way you could quantify the impact for us. And what do you think the threshold you need to clear for you to drive meaningful growth in the with your managed care partners, you know, either in membership base, clinical stats, anything else you need to call up here.
Speaker Change: It's a great question. I am so proud of the fact that Brookdale residents in a Health Plus community get better clinical outcomes than residents living at home or in competitive senior living communities. Seeing that 80% reduction in urgent care or emergency room visits and the 66% reduction in hospitalizations,
Speaker Change: that you will have higher occupancy in the community and that will translate into stronger cash flow. So that's how we built the program. The icing on the cake has always been the PMPMs that we received from certain Medicare Advantage plans.
Speaker Change: to continue to grow profitably, and so that's what we're really focused on.
Speaker Change: Great, and if I may sneak in one more, on the 41 acquisitions you did, are the performance consistent across the three portfolios or are there any assets you don't necessarily see fit with your current strategy that you could potentially dispose of at some point?
Speaker Change: It's a really good question. The performance is different across the assets. Some of the assets we acquired under a very attractive favorable purchase option. They are an incredibly high quality market.
Speaker Change: So you'll hear more from us about that over the coming quarters, but the important thing to know is the transaction on its terms.
Speaker Change: is a very solid financial return and anything we might do with the portfolio structure after that would be attractive and additive to those strong cash flow improvements that we talked about.
Awesome, I'll leave it there, thank you.
Thank you so much. Thank you, Carol.
Speaker Change: Thank you and there are no further questions at this time. This does conclude today's conference call. You may now disconnect.
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