Q2 2025 Brookdale Senior Living Inc Earnings Call
As chairman not devoid, Dan Caruso, Executive Vice President and Chief Financial Officer, and Chad White, EVP General Counsel and Secretary.
All statements city, which are not historical facts may be deemed to be forward looking statements within the meaning of the federal securities laws.
Morning. I'd like to welcome you to the second quarter earnings call for Brookdale Senior Living.
This is statements are made as of today's date and Brookdale expressly disclaims any obligation to update these statements in the future.
Actual results and performance may differ materially from the forward looking statements.
Joining us today are Denise, Warren interim, CEO and chairman of the board, Don kuso Executive Vice, President, and Chief Financial Officer, and Chad, White EVP, general counsel, and secretary.
Certain of the factors that could cause the actual results to differ are detailed in the earnings release Brookdale issued yesterday as well as in the reports Brookdale files with the S. E C from time to time, including the risk factors contained in its annual report on Form 10-K, and quarterly reports on Form 10-Q, eight Iraqis to the release for the full.
All statements today which are not historical facts. May be redeemed to be forwarded looking statements, within the meeting of the federal Securities laws.
This is statements are made as of today's date and Group Dale. Expressed the disclaims any obligation to update this statements in the future.
Safe Harbor statement.
Actual results and performance may be for maturity from the forward-looking statements.
Also please note that during this call Brookdale, we will present non-GAAP financial measures a reconciliation of each non-GAAP measure from the most comparable GAAP measure either direct you to the release and supplemental information, which may be found at Brookdale investors Dot com and was furnished in an 8-K yesterday now.
I will now turn the call over to Denise.
Certain of the factors that could cause the actual results to differ are detailed in the earnings release Brookdale issued yesterday as well as in the reports Brookdale files with the SEC from time to time, including the risk factors contained in its annual report on form, 10K and quarterly reports on form. 102, I direct you to the release for the full safe Harvard statement.
Good morning, and welcome to Brookdale second quarter, 'twenty 25 earnings call.
It's a pleasure to be here today as interim CEO.
I'm joined by two integral members of the office of the CEO.
Dan Caruso, our Chief Financial Officer.
That's why our general counsel.
Also, please note, that during this call Brookdale will present non-gaap Financial measures for reconciliations of each non-gaap measure, from the most comparable gaap measure either direct you to the release and supplemental information, which may be found at Brookdale investors.com and was furnished on an 8K yesterday. Now, I will now turn the call over to Denise.
This morning, I'll provide a high level review of our second quarter results, followed by an update on the strategic priorities, we outlined during the Q1 earnings call.
Good morning and welcome to Brooke. Dell's second quarter, 2025 earnings call.
It's a pleasure to be here today as interim, CEO.
I also will provide updates on a couple of other items of interest.
I'm joined by 2 integral members of The Office of the CEO.
After my remarks dome will present, a detailed overview of our second quarter financials, including guidance ranges and our outlook for the remainder of the year.
Don cuso our Chief Financial Officer and Chad White, our general counsel.
<unk> will join us for the Q&A session.
Now for second quarter highlights.
This morning, I'll provide a high-level review of our second quarter results. Followed by an update on the Strategic priorities. We outlined during the q1 earnings call.
<unk> delivered solid second quarter performance. Despite the backdrop surrounding our annual shareholder meeting the team remained focused and made progress on improving our operations and financial results.
I also will provide updates on a couple other items of Interest.
We also continued our ongoing portfolio optimization plan.
Chad will join us for the Q&A session.
Same community weighted average occupancy for the second quarter came in at 87% growing 190 basis points over the prior year quarter.
June month in same community occupancy came in at 82, 8%, which was 240 basis points higher than month end occupancy in June 'twenty 'twenty four.
July month end occupancy came in at approximately 83, 3%, which was 260 basis points higher than month end occupancy in July of 'twenty four recall, roughly the 80% occupancy Mark is a critical and.
Collection point for cash flow generation at Brookdale, while delivering occupancy growth. We also held rate as Rev. Poor on a same community basis grew two 4% year over year.
June month. Insane Community occupancy, came in at 82.8%, which was 240 basis points. Higher than month. End occupancy in June 2024.
Now that our consolidated portfolio has weighted average occupancy greater than 80% our focus will be on ensuring rate growth outpaces expense growth, while not sacrificing occupancy.
We are pleased to report that adjusted EBITDA for the company grew 19.7% quarter over quarter.
And is up 23, 4% for the first half of the year.
Most importantly, we continued to generate positive adjusted free cash flow for the second quarter in a row.
Adjusted free cash flow came in at $20 million for the quarter versus a negative $6 million for 'twenty 'twenty four second quarter.
For the first six months of the year, our adjusted free cash flow is $24 million versus a negative $32 million for the same period last year.
Note our leased portfolio also generated positive adjusted free cash flow for both the first and second quarters of 2025.
Moving on to updates on our strategy.
As outlined last quarter, we believe our five part strategy remains central to unlocking brookdale is intrinsic value too.
To review each.
One.
Improving operating performance.
Operational excellence is critical to the success of Brookdale higher occupancy improved rates and robust cash flow, we'll generate the capital necessary for reducing leverage and reinvesting in our business.
We are working to accelerate profitable occupancy through revenue yield management disciplined and appropriate expense oversight.
Strengthened operational accountability and targeted strategic investment.
Last quarter, we outlined a plan to pilot new incentives and pricing promotions to boost occupancy in selected communities.
Many translated this statement into Brookdale is quote slashing rates.
Unquote, so I'll try to be more clear this quarter Brookdale is not slashing rate we remained.
<unk> focused on profitable occupancy and maximizing fixed cost leverage to grow EBITDA and free cash flow.
Maximizing fixed cost leverage means we must maintain an occupancy rate greater than 80%, while continuing to ensure rate growth that exceeds expense growth.
We saw the results of this effort during the quarter, where both occupancy and rate grew over the prior year period.
A further indicator of improved performance for the quarter can be seen in our occupancy bands.
To elaborate in Q1, there were 143 communities in our less than 70% occupancy band.
That number improved by 10% or 14 communities to 129 during the second quarter.
50 of these are slated for disposition through either lease terminations or asset sales and 38 are working with our Swat teams.
The remaining 41 19 require only one two or three move ins to advance to the next category.
Looking at the other end of the spectrum those communities with greater than 95% occupancy grew from 73 in the first quarter to 88 in the second quarter, an increase of 15 communities or 21% improvement.
To Swat teams are now in place covering 137 communities.
Team one is focused on underperforming high opportunity locations requiring immediate attention.
These properties have seen a 350 basis point occupancy increase and 7% Revpar growth since Q4, when the team began its work.
Tier two is mainly dedicated to communities that collateralize, our upcoming debt refinancings.
In this group, we are working to enhance performance to maximize collateral value.
These properties saw sequential occupancy growth of 200 basis points and enjoyed 150 basis points of sequential revpar growth since the team began its work in may.
We are making progress on structuring a permanent distressed asset team that will move across the portfolio shoring up communities, where performance is starting to wane.
With a portfolio of just under 600 assets by the end of the year, there always will be some that need extra care and attention.
We expect to have this team up and running by the end of the quarter.
We are continuing a rigorous cost review to align our expenses with the size of our portfolio.
As part of this effort G&A expenses were reduced by $850000 in Q2 versus Q1.
And are down $1 2 million from <unk> 24.
In each case G&A expense excludes transaction legal and organizational restructuring cost, which does include costs incurred around our annual shareholder meeting and severance.
We are aware further progress needs to be made on our cost structure and we will continue to focus our efforts on this area during the third quarter.
Number two.
Optimizing our real estate portfolio.
We continue to streamline our portfolio to focus on communities with the strongest long term value creation potential.
As of June 30, Brookdale consolidated portfolio was at 617 communities.
235 leased and 382 owned.
As announced previously we plan to exit 55 leased assets by year end.
We received their transition schedule for these locations in early July and based upon our review it appears the communities with the most challenged performance will be transitioning later in the year.
This compares to our original assumption for our guidance modeling purposes that all communities would transition on October one.
As such we expect to have additional negative pressure on our consolidated financials during the transition time.
Don has incorporated this new timeline in the updated guidance that she will speak to in a few minutes.
During Q2, we closed on the sale of one owned community and the transition of one leased property.
Of the remaining 13 previously announced dispositions.
All but one are under contract.
Also we've recently identified another 28 assets that will be leaving the portfolio and expect those to transition over the next 12 to 18 months.
As with the original 14 community dispositions announced last quarter. We believe the exit of this additional group will result in improved occupancy revpar adjusted EBITDA and adjusted free cash flow, while generating cash.
Proceeds that can be used for capital reinvestment and debt repayments.
Note of the 41 assets to be sold 27 are in the under 70% occupancy band.
Three.
Capital reinvestment.
Reinvestment in our communities is essential to maintaining market relevance and quality.
And to accelerating profitable occupancy growth.
In Q2, we invested $49 million into capital projects and have over 500 capital related projects underway from a static upgrades to larger renovations.
For reducing leverage.
Deleveraging enhances financial resilience and shareholder value.
It will not happen overnight, we are working to reduce leverage meaningfully through continued adjusted EBITDA and cash flow growth as well as portfolio optimization.
To that end during the second quarter, we reduced our adjusted annualized leverage from nine seven times to 9.3 times.
Recall, approximately 88% of our debt is non recourse secured by property level mortgages.
Upon asset sales mortgage obligations are fully repaid.
And excess proceeds may be deployed toward growth.
Investment or further debt reduction.
As noted earlier during the quarter, we sold one owned asset.
Have L O oz or purchase agreements on an additional 13 assets and have identified another 28 for disposition.
As we have demonstrated we are committed to taking appropriate actions to unlock the intrinsic value of our real estate to drive shareholder value creation, and we will continue to look for ways to optimize our portfolio and reduce our leverage profile.
File.
Nearly all of our debt is refinanced through 2026 and the team has made excellent progress working with our lenders on the 2027 tranches.
Number five elevating.
<unk> quality for our residents and associates.
Almost 50000 seniors call Brookdale home.
And over 36000 associates choose us as their employer.
This quarter two of our culinary experts were recognized with senior housing News's dished dining innovation awards.
Bethany Johnson a district director of operations in Florida was selected by the Florida Senior Living Association as outstanding operator of the year for 2025.
Our very own CFO, Dan Caruso was inducted into the Mcknight women off distinction Hall of Fame class for 2025, recognizing her outstanding talents and service to Brookdale.
We are pleased the industry is recognizing the top talent that serves our residents every day.
Moving on to shareholder engagement and the CEO search.
We are grateful that each of our director nominees received the support of a majority of our shareholders at this year's annual meeting and we appreciate the constructive feedback we received throughout the process.
This feedback is instrumental and how we will shape brookdale path forward.
Management and the board considers the feedback received from all shareholders to be important and we will use it to further strengthen our governance and our operations and we will refine how we communicate brookdale value proposition.
As you review the information contained in our Investor deck and supplement we hope you will recognize many of your suggestions.
Lastly, the CEO search committee has reviewed approximately 50 potential candidates casting a wide net across senior housing.
Health care hospitality and real estate.
The committee and full board have interviewed a number of candidates and with the annual meeting now behind US we aim to conclude the process in the coming months.
Out of respect for all participants in the process, we will not take questions on the search during today's call.
To close Brookdale, so strategy is taking hold and driving improved performance.
We are energized by our strong momentum and the promising opportunities for growth that lie ahead.
Thank you for your interest in and support of Brookdale.
With that I'll turn the call over to Don.
Thank you Denise we were pleased with our continued operational progress, particularly with our occupancy growth during the quarter, which accelerated in May and June.
Our operational improvements have been meaningful and we are seeing the changes in our results.
As a result of our progress occupancy and adjusted EBITDA exceeded our expectations for the quarter.
Giving us confidence to raise our annual guidance ranges for the second quarter in a row.
We had several operational successes this quarter.
Our second quarter consolidated average occupancy of 81% is the first time, we have delivered quarterly weighted average occupancy above 80% on a consolidated basis since the first quarter of 2020.
The 80 basis points sequential occupancy growth was the strongest second quarter growth since 2022 and is evidence that our operational Swat teams and other initiatives to drive occupancy continued to be effective.
As a result of these efforts our sequential occupancy growth was better than the industry average as reported by Nic and better than the health care Reits consolidated shop portfolio results.
Our same community portfolio, which excludes event has transition assets. The 12 assets held for sale and three other communities had quarterly occupancy of 87% a sequential increase of 70 basis points.
We delivered $20 million of adjusted free cash flow, which is our second consecutive quarter of positive adjusted free cash flow.
We also showed continued improvement in our occupancy bands with 14 or 10% fewer communities included in the less than 70% band for the second quarter of 2025 compared to the first quarter well are over 95% occupancy ban also grew by 15 communities or 21%.
And we had continued adjusted annualized leverage improvement.
As a result, we have improved our annual guidance for both year over year Revpar growth and for adjusted EBITDA.
We are pleased with our continued progress and are optimistic about the remainder of the year, but before I speak to that I'll walk you through the details of our second quarter financials.
I'll begin with second quarter revenue.
Consolidated Revpar grew five 1% above the prior year in the second quarter, driven by an ongoing acceleration and year over year weighted average occupancy growth of 200 basis points.
Second quarter move ins were 7% above the prior year and 9% above historic average well move out volume was also beneficial to the quarter.
Our consolidated weighted average occupancy increased 200 basis points year over year to 81% in the second quarter year over year, our monthly occupancy growth continued to accelerate during the second half of the quarter.
And continued through July with a 250 basis point increase compared to July 2024.
We saw softness in our move ins early in the second quarter. Consequently, we implemented strategic and selective incentives. In addition to the other initiatives we've discussed to help drive move in growth as we enter the important summer selling season.
We expect these incentives to moderate as we move forward.
And continued through July, with a 250 basis point increase compared to July 2024.
June was a very strong move in month with June consolidated month end occupancy at 82, 2%.
We saw a softness in our move in early in the second quarter.
The full accretive impact of these positive occupancy results will be realized in the third quarter, while most of the cost of the strategic and selective incentives. We have in place to help drive outsized occupancy performance in June is reflected in our second quarter results.
Consequently, we implemented strategic and selective incentives. In addition to the other initiatives, we've discussed to help Drive move and growth as we entered the important summer selling season.
We expect these incentives to moderate as we move forward.
Second quarter consolidated Revpar grew two 4% over the prior year quarter, reflecting both resident rate increases the ongoing trend of lower resident acuity and to a lesser extent the impact of the strategic and selective initiatives.
June was a very strong month, with June consolidated month-end occupancy at 82.2%.
I'll now pivot to same community results there.
The full accrete of impact of these. Positive occupancy results will be realized in the third quarter, While most of the cost of the Strategic and selective incentives. We had in place to help Drive outsized occupancy. Performance in June is reflected in our second quarter results.
There's 70 communities included in our consolidated portfolio that are excluded from our same community portfolio.
Of the 70 55 at the Ventas lease communities that we will not operate by year end.
Second quarter same community Revpar increased four 8% over the prior year, driven by a 190 basis points of occupancy growth and a two 4% increase in revpar.
Second quarter Consolidated, rev poor grew 2.4% over the prior year, quarter reflecting both resident rate increases the ongoing trend of lower resident Acuity and to a lesser extent, the impact of the Strategic and selective initiatives.
I'll now pivot to same Community results.
There's 70 communities included in our Consolidated portfolio that are excluded from our same Community portfolio.
Our second quarter same community weighted average occupancy continued to accelerate with 70 basis points of sequential growth, which was significantly better than normal seasonality for this period.
Of the 70. 55 are the ventas lease communities. That we will not operate by year end.
Moving to expenses.
On a same community basis expense per occupied unit or ex poor increased two 3% over the prior year second quarter compared to the two 4% revpar growth, reflecting our positive revpar to export spread.
Second quarter, same Community. Rev, par increased 4.8% over the prior year, driven by 190 basis points of occupancy growth and a 2.4% increase in rev 4.
Our second quarter, same Community weighted. Average occupancy continued to accelerate with 70 basis points of sequential growth, which was significantly better than normal seasonality for this period.
Nevertheless, we recognize that there is more work to be done.
Moving to expenses.
Second quarter same community operating income was four 9% better than the prior year.
The operating income margin was flat there is seasonality associated with operating income margin, particularly as you compare first quarter to second quarter. When our labor expense base is impacted by the full impact of annual associate merit increases as well as an extra day of expenses remember.
On the same Community basis, expense per occupied unit or export, increase 2.3% over the prior year. Second quarter compared to the 2.4% Rev, poor growth reflecting a positive rev poor to export.
Nevertheless, we recognize that there is more work to be done.
Remember that 2024 was a leap year with the same number of days in the first and second quarter of 2024, and consequently, the second quarter of 2024 did not see the same seasonal sequential operating income margin decline that we typically see from first quarter to second quarter.
Second quarter, same Community. Operating income was 4.9% better than the prior year. While the operating income margin was flat.
2025 results reflected a more normalized year.
There is seasonality associated with operating income margin, particularly as you compare first quarter to second quarter when our labor expense base is impacted by the full impact of annual associate Merit increases as well as an extra day of expenses.
Now moving beyond same community level results.
We continue to see improvement in our general and administrative expense as reflected in our adjusted EBITDA results.
As a percent of revenue general and administrative expense improved 40 basis points to the second quarter of 2024, excluding noncash stock based compensation expense and transaction legal and organizational restructuring costs.
That 2024 was a leap year with the same number of days and the first and second quarter of 2024 and consequently, the second quarter of 2024 did not see the same seasonal. Sequential operating income margin decline that we typically see from first quarter to second quarter,
2025 results. Reflected a more normalized year.
Now, moving beyond same Community level results.
We remain prudently focused on an appropriate cost structure for the expected changes in our portfolio and are seeing the benefits of these efforts reflected in our second quarter results.
We continue to see improvement in our general and administrative expense as reflected in our adjusted e ba results.
Lastly, cash operating lease payments were $57 million.
As reported in yesterday's press release second quarter, adjusted EBITDA was $117 million or 20% above the prior year quarter.
As a percent of Revenue General and administrative expense improved, 40 basis points. To the second quarter of 2024, excluding non-cash, stock stock based compensation expense and transaction, legal and organizational. Restructuring costs
We're very pleased to have delivered the significant growth in second quarter, adjusted EBITDA, which was above internal expectations and analysts consensus estimates.
We remain prudently focused on an appropriate cost structure for the expected changes in our portfolio and are seeing the benefits of these efforts reflected in our second quarter results.
Lastly, cash. Operating lease payments were 57 million
Believe it is a reflection of our improving operational performance.
To that end second quarter, adjusted free cash flow increased $25 million over the prior year quarter to a positive $20 million, we still expect 30 million to $50 million of adjusted free cash flow for the full year 2025.
As reported in yesterday's press release. Second quarter. Adjusted ebit. Da was 117 million or 20% above the prior year quarter.
Notably, both our owned and leased portfolios, where adjusted free cash flow positive.
For very pleased to have delivered the significant growth in second quarter adjusted ebit da, which was above internal expectations and analysts consensus estimates, and believe it is a reflection of our improving operational performance.
As of June 30th total liquidity was $350 million of $44 million sequential increase the primary drivers of our increase in liquidity, where a positive adjusted free cash flow and a new letter of credit facility, which freed up capacity on our line of credit.
To that end. Second quarter, adjusted free, cash flow, increased 25 million over the prior year quarter to a positive 20 million. We still expect 30 million to 50 million of adjusted. Free cash flow for the full year 2025
With our strong adjusted EBITDA results, we continue to make progress on our adjusted annualized leverage improving almost half a turn sequentially to nine three times with meaningful adjusted EBITDA growth and the cash flow generation power that comes from 80 plus percent occupancy we expect annualized.
Notably both our owned and leased portfolios were adjusted, free, cash flow positive.
As of June 30th. Total liquidity was 350 million, a 44 million sequential increase.
The primary drivers of our increase in liquidity, were a positive adjusted free cash flow and a new letter of credit facility which freed of capacity on our line of credit.
This leverage to significantly decline over the coming years with additional deleveraging to result from the disposition transactions Denise previously mentioned.
Lastly, before turning to our guidance I want to comment on updates to our investor presentation.
As we worked with many of our shareholders recently, we have added slide 16 to 18 to our presentation.
With our strong adjusted ebit da results. We continue to make progress on our adjusted annualized. Leverage improving, almost half a turn sequentially to 9.3 times with meaningful adjusted Eva dog growth and the cash flow generation power that comes from 80 plus percent occupancy. We expect annualized, leverage to significantly decline over the coming years.
The slides articulate brookdale significant value proposition, given the robust supply and demand tailwind.
With additional deleveraging resulting from the disposition transactions, Denise previously mentioned.
With limited new supply and growing demand, we see significant long term organic growth potential, particularly as we move communities higher and the occupancy bands and drive higher Rev. Poor and operating income due to the significant operating leverage of our fixed cost structure.
Lastly, before turning to our guidance, I want to comment on updates to our investor presentation.
As we worked with many of our shareholders recently, we have added slide 16 to 18 to our presentation.
Turning now to 2025 expectations as reflected in yesterday's press release, given our strong second quarter results. We have improved our annual guidance for both year over year Revpar growth and for adjusted EBITDA.
The slides articulate. Brookdale's, significant value proposition. Given the robust supply and demand. Tailwind.
We now expect 2025 revpar growth in the range of five to 5% to 6% over the prior year.
With limited new Supply and growing demand, we see significant long-term organic growth potential, particularly as we move communities higher in the occupancy bands and drive higher rev, poor, and operating income due to the significant operating leverage of our fixed cost structure.
Teams throughout our organization are committed to the plans Denise spoke about to accelerate profitable occupancy growth and we've reflected that commitment and our expectations.
Also reflected in our Revpar guidance range is the normal sequential step down in Revpar dollars each quarter of the year as newer residents generally move in with lower acuity and therefore have a lower cure rate than existing residents.
turning now to 2025 expectations as reflected in yesterday's, press release, given our strong second quarter results, we have improved our annual guidance for both year-over-year, rev par growth, and for adjusted evida
We now expect 2025 revpar growth in the range of 5.25 to 6% over the prior year.
We remain optimistic that both weighted average occupancy and revpar growth compared to the respective prior year quarters will be even stronger in the fourth quarter of 2025, then we just delivered in the second quarter.
Team stouter organization are committed to the plans. Denise spoke about to accelerate profitable occupancy growth and we have reflected that commitment in our expectations.
Our raised 2025, adjusted EBITDA guidance range of $445 million to $455 million incorporates these favorable top line expectations.
Also reflected in our rev Park guidance range. Is the normal sequential step down in rev, poor dollars each quarter of the year as newer residents generally move in with lower Acuity and therefore have a lower care rate than existing residents.
Our initial guidance for 2025 assumed in October for 2025 transition date for all 55, ventas non renewal communities to be transitioned or sold.
We remain optimistic that both weighted average occupancy and RevPAR growth compared to the respective prior year quarters will be even stronger in the fourth quarter of 2025 than we just delivered in the second quarter.
Our revised guidance range give effect to updated expectations on the actual timing of the various transitions, which are now expected to have a negative adjusted EBITDA impact of approximately $2 million.
Our raised 2025 adjusted Eva guidance range of 445 to 455 million incorporates, these favorable Topline expectations.
As compared to our previous guidance without the impact of this change our updated adjusted EBITDA guidance would have been higher by approximately $2 million.
For all 55 ventas, non-renewal communities to be transitioned or sold.
To the extent that the transition timeline is not achieved as expected. It may further impact our consolidated results. We remain diligent in our focus on profitable occupancy growth and as a result, we expect continued leverage from our increasing occupancy given the high fixed cost nature of our industry.
Our revised guidance range. Give effect to updated expectations. On the actual timing of the various transitions, which are now expected to have a negative adjusted, Evita impact of approximately $2 million.
As compared to our previous guidance.
Without the impact of this change, our updated adjusted Eva dog guidance would have been Higher by approximately 2 million dollars.
When thinking about our annual guidance and specifically when modeling the second half of the year compared to the first half results.
To the extent that the transition timeline is not achieved as expected. It may further impact our Consolidated results.
It is important to remember a few factors many of which are shown on the last page of our investor presentation.
As reflected in our revised guidance one cannot simply double the first half performance to determined full year expectations first when considering the day count of the fiscal year. The second half of the year has three additional work days and two incremental holiday as compared with the first half of the year. This is important.
We remain diligent in our focus on profitable occupancy growth. And as a result, we expect continued leverage from our increasing occupancy. Given the high fixed cost nature of our industry.
When thinking about our annual guidance and specifically when modeling the second half of the year, compared to the first half results,
it is important to remember a few factors many of which are shown on the last page of our investor presentation.
Because our revenue is largely based upon a monthly resident fee, whereas our expense structure is driven by daily expenses largely in labor, including premium pay for holidays, but also in other operating expenses.
Second the first half of the year includes one full quarter impact of community Associates Merit increase while the second half of the year has two full quarters of that impact.
As reflected in our revised guidance, 1 cannot simply double the first half performance to determine full year Expectations first. When considering the day count of the fiscal year, the second half of the year has 3 additional work days and 2 incremental holidays, compared with the first half of the year
Third there is variability in utilities expense between quarters with higher expense in the third quarter due to the hotter temperatures and declining expense in the fourth quarter with moderating temperatures.
This is important because our revenue is largely based upon a monthly resident fee. Whereas our expense structure is driven by daily expenses, largely in labor, including premium, pay for holidays, but also in other operating expenses.
Fourth is the official hurricane season begins in June and run through November we've assumed a moderate level of natural disaster expenses as we think about our full year guidance.
Second. The first half of the Year includes 1 full quarter impact of community Associates. Merit increase will the second half of the year has 2 full quarters of that impact.
Lastly, note that G&A rationalization savings pertaining to the ventas transitions will be spread throughout the year with some savings already recognized in the first half of 2025 and.
Third, there's variability in utilities, expense between quarters with higher expense in the third quarter, due to the higher temperatures and declining expense in the fourth quarter with moderating temperatures.
In contrast, the corresponding operating income step down from divesting Ventas communities will largely impact the fourth quarter specific to the third quarter. The impact from these seasonal factors and extra day and holiday in the third quarter compared to the second quarter and seasonally high utilities is expected to be.
Fourth, the official hurricane season begins in June and runs through November. We've assumed a moderate level of natural disaster expenses as we think about our full-year guidance.
Lastly, note that GNA rationalization savings pertaining to the ventas will be spread throughout the year, with some savings already recognized in the first half of 2025.
Nearly $10 million of an adjusted EBITDA headwind between the second and third quarters.
In closing we are pleased with our second quarter results and are confident in our strategic and operational plans to support another year of solid adjusted EBITDA growth.
We are operating with purpose and are confident in our ability to build sustainable long term value for our shareholders.
In contrast, the corresponding operating income step down from divesting ventas. Communities will largely impact the fourth quarter specific to the third quarter, the impact, from the seasonal factors, and extra day and holiday in the third quarter, compared to the second quarter and seasonally High. Utilities is expected to be nearly 10 million dollars of an adjusted ibida headwind between the second and third.
Operator, we will now open the call for questions.
Quarters.
Thank you and we will now begin the question and answer session. If you have dialed in and would like to ask a question. Please press star one on your telephone keypad to raise your hand and joined the queue. If you would like to withdraw your question. Thank you pressed us Taiwan again, if you are called upon to ask your question and I listened.
In closing, we are pleased with our second quarter results and our confident in our strategic and operational plans to support another year of solid adjusted evida growth.
We are operating with purpose and are confident in our ability to build sustainable long-term value for our shareholders.
Operator. We will now open the call for questions.
Ballard speaker in your device he can speak up your handset and ensure that your phone is not on mute when asking your question again, the spread had started one to join the queue.
And your first question comes from the line up Brian <unk> with Jefferies. Please go ahead.
Hey, good morning.
Maybe first question Denise as I think about the successes that you've shown in driving occupancy what have you been doing differently since maybe you've stepped into the role than just operationally what kind of initiatives.
Thank you, and we will now begin the question and answer session if you have dialed in and would like to ask a question. Please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw, your question, simply press the star 1, again, if you are called upon to ask your question and are listening by a loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. Again, please press star 1 to join the queue.
Different strategies, you've rolled out.
And your first question comes from the line of Brian Tangela with Jeffrey's. Please go ahead.
Well, Brian that's a great question.
Since I've gotten here, we have focused a lot on the Swat teams.
We had one group that just started to work in the fourth quarter, and we double down and emphasized so that group on the actions that we needed to take.
Hey, good morning. Um, maybe first question, Denise. As I think about, you know, the successes that you've shown in driving occupancy, you know, what have you been doing differently since? Uh, maybe you've, you've stepped into the role and just operationally what kind of initiatives and the different uh, strategies you've rolled out since
um,
To really drive profitable occupancy not just occupancy.
We also put in place a second Swat team to focus on an additional set of assets that would be coming up for refinancing in the 2027 timeframe. The goal of those is to maximize the collateral value prior to actually having to renew them. The goal with that is not net.
Well, Brian, that's a great question. Um, since I've gotten here, we have focused a lot on the SWAT teams.
Uh, we had one group that just started to work in the fourth quarter, and we, uh, doubled down and emphasized to that group the actions that we needed to take, uh, to really drive profitable occupancy, not just occupancy.
Necessarily to two.
To continue to borrow at that level, but to bring collateral assets out of the pool.
We have also instilled a new.
A new focus on accountability.
Some of the things that we've done there is we can put in a daily standup, meaning between the operations people.
And the salespeople and the marketing people.
So we have a daily look at what each of those areas is doing to drive our profitable occupancy.
In the 2027, Tom frame, the gold with those is to maximize the collateral value prior to actually having to renew them. The goal with that is not necessarily to, um, you know, to continue to borrow at that level. But to bring, uh, collateral assets out of the pool.
We have also instilled a new.
If someone is falling behind if we can help them catch up.
A new focus on accountability.
We can also share ideas, we can take down barriers.
The.
The Swat teams are also focused on how do we remove barriers that have been put in place when you become a very large organization and complex organizations, such as Brookdale, So and those groups that need the most help we can help them bypass.
Uh, some of the things that we have done there is we've put in a daily stand-up meeting between the operations people, uh, and the salespeople and the marketing people. So, we have a daily look at what each of those areas is doing to drive our profitable occupancy. Uh, if someone is falling behind, we can help them catch up.
Uh, we can also share ideas; we can take down barriers.
To get folks hired more quickly we can replace executive directors that need to be or positions that need to be filled.
We can help them with their capex spend and there's just a lot of really granular things that we can do and all of those areas to really push the focus on driving it I think a lot of it is really increasing the sense of urgency.
That that we need to take and and then we've done a lot of work on the culture side of the organization as well.
The uh, the SWAT teams are also focused on how do we remove barriers that have been put in place when you become a very large organization and complex organizations such as Brookdale so and those groups that need the most help, we can help them bypass to get folks hired. More quickly we can replace executive directors that need to be or positions that need to be filled. Uh, we can help them.
Have.
We have really put decision making into the hands of those that are touching our residents everyday and those people that are in the field.
Those are the most important people to us because they see every day and what is wrong and they know how to fix it and we need to allow them the operational responsibility to make those decisions with guidance from us in Brentwood, but from Brentwood, we can't see what's happening in those facilities.
What their capex spend is. There's just a lot of really granular things that we can do in all of those areas to really push the focus on driving it. I think a lot of it is really increasing the sense of urgency that we need to take. And then we've done a lot of work on the culture side of the organization as well.
<unk> and so we need to travel we need to be in the more frequently and we need to be working with our executive directors and our field operators on how do we get the operational improvements that we need.
No that makes a lot of companies and then maybe as I think about just the last part of your comment right.
You can only giving that level of independent to the community how should we be thinking about.
Between balancing rate and occupancy going forward and then maybe you could drill down a little bit more what does that do answers will take occupancy within.
We have, um, you know, we have really put decision making in to the hands of those that are touching our residents every day and those people that are in the field. You know those are the most important people to us because they see every day what is wrong and they know how to fix it and we need to allow them. The operational responsibility to make those decisions with guidance from us in Brentwood. But from Brentwood, we can't see what's happening in those facilities. And so we need to travel, we need to be in the more frequently and we need to be working with our executive directors and our field operators on. How do we get the operational improvements that we need?
Within the Brookdale portfolio and how do you how do you expect that to trend going forward.
Sure.
No.
As Don said earlier, the occupancy band focus is really important to us and we brought that up over the last couple of months surrounding our shareholder our annual shareholder meeting and talking with a number of investors over that time period, our lessons 70% occupancy.
No, that makes a lot of sense if it needs. And then maybe as I think about just the last part of your comment, right? Um, you kind of like giving that level of Independence to the community, how should we be thinking about, you know, the philosophy between balancing rate and occupancy going forward and then maybe to drill that down a little bit more. You know, what is that doing? In terms of like the occupancy bands, um, within the Brookdale portfolio and how do you, how do you expect that to Trend going forward?
C band, we have to get them up and.
And we have to get them up because we don't start covering our fixed costs until we hit that 80% Mark.
And so we need to get those properties moving and I think you saw that from the change in those communities from 143 in the first quarter to 129 in the second quarter and then I believe we eliminated what we were doing within the 129 mix to further improve that.
Sure, you know, um, as Don said earlier, the occupancy band focused is really important to us. And we brought that up over the last couple of months, um, surrounding our shareholder. Our annual shareholder meeting and talking with a number of investors over that time period, our lesson, 70% occupancy bands, we have to get them up.
And we have to get them up because we don't start covering our fixed costs until we hit that 80% mark.
Occupancy going into the third quarter. You also saw that we have bifurcated the portfolio and we're focused on the communities are greater than 80% occupancy and you saw that the ones that are actually greater than 90, Bard had a significant move in the occupancy bands there because.
When you look at what falls to the EBITDA more quickly it's the ones that have covered their fixed cost. So we have to bifurcate the portfolio.
And so we need to get those properties moving. And I think you saw that from the change in those communities from 143, in the first quarter to 129 in the second quarter. And then I believe we eliminated what we were doing within that 129 mix to further improve that, occupancy going into the third quarter. You also saw that we have bifurcation
The under 70 is up to 80 and to get that over 80, so really performing exceptionally well where were more focused on pricing in those avenues than we are in the under 70, while we're getting them up and I think Don has some additional comments around those occupancy bands too.
Okay, I think I think what as we said in our prepared remarks, we had significant progress in those occupancy vans and I mean, we really are focused on maximizing our pricing, particularly in the higher level, but in the less than 70, that's where maybe some of the targeted incentives some of the spotlight.
Additional comments around those occupancy bands, too.
Units.
As Denise said, just the pure economics of getting those up to that 80%. So they can start to cash flow and contribute if you look at the less than 70% band.
I think we had some prepared remarks, and just kind of what was in that band and the actions that we've taken and when you really do the math there is very few communities less than that the other thing that will point out is if.
If you look at we added new slide 16 through 18 on our Investor presentation and that is really trying to articulate really the value proposition as you Peel one layer.
I, I think, I think what, as we said in our prepared remarks, we had significant progress in those occupancy bands and I mean, we really are focused on maximizing our pricing, particularly in the, in the higher level, but in the less than 70, that's where maybe some of the targeted incentives. Some of the spotlight units. Um, as Denise said, just the the pure economics of getting those up to that 80% so they can start to cash flow and contribute. If you look at the less than 70% banned,
Lower into the profitability of the units and the under 70 in the 70 to 80, and really where we have our future growth.
From the economics of growing that 70% to 80% band up above the 80% as Denise just talked about.
Got it thank you.
And your next question comes from the line of Ben Hendrix with RBC capital markets. Please go ahead.
Hey, great. Thank you very much I appreciate all the commentary about the profitable occupancy strategy hitting 80% is definitely translating to solid cash flow performance, but just wanted to drill in a little bit on the pricing component of that.
um, I think we had some prepared remarks and just kind of what was in that band and the actions that we've taken, and when you really do the math, there's very few communities less than that. The other thing that we'll point out is, um, if you look at we added new slide 16 through 18 on our investor presentation, and that's really trying to articulate really the value proposition as you peel 1 layer, um, lower into the profitability of the units in the under 70 and the 70 to 80 and really where we have our future growth. Um from uh the economics of growing that 70 to 80% banned up above the 80%, as Denise just talked about
Got it. Thank you.
<unk> talked about this 10 basis point spread between the Revpar in export and wanted to get some indication is that kind of like how we should think about that 10 basis points spread how we should think about pricing in the intermediate term or is there like a higher target spread there once we clear some of these lower.
And your next question comes from the line of Ben Hendricks with RBC Capital Markets. Please go ahead.
C bands just any thoughts on how we think about that normalizing out for longer term.
Ben This is Dan Thats, a great question I would say just a couple a couple of things and Denise and I, both talked about the margin growth that we would be focused on as you think about continuing to grow our margin. We did deliver net operating income growth, but we certainly do expect to have margin.
Hey, great, thank you very much. Uh, appreciate all the commentary about the uh profitable occupancy strategy hitting 80%, definitely translating to solid cash flow performance. But just wanted to uh, drill in a little bit on the pricing component of that. Uh, you talked about this 10 basis points, spread between the Rev, poor and Export and wanted to get some indication is is that kind of like how we should think about that 10 basis points? Spread that, you know, how we should think about pricing in the intermediate term or is is there like a higher Target spread there? Once we cure, some of these lower occupancy bands, just any thoughts on how we think about that, normalizing out for longer term.
Expansion, particularly as we get into 2026.
But what I would say about the reservoir to export.
Differential the 10 basis points is there is a level of noise in some of our expenses as you think about.
We're self insured last year, we saw the move in.
The move in from the third party noise, we had a little bit more visibility into that early in the year, which impacted some of our incentive plans and so.
As you think about that margin spread we certainly would expect that to get.
Been this is Don that's a great question. I I would say just a couple a couple of things and and Denise and I both talked about the the margin growth that we would be focused on as you think about continuing to grow our margin. We did deliver net operating income growth but we would we certainly do expect to have margin expansion particularly as we get into 2026. Um but what I would say about the Rev port to export uh uh differential, the 10 basis points is there is a level of noise in some
A little bit more of a growth between the two.
And so I think that as we as we go through the year and we grow our occupancy we focus on some of our pricing and our targeted incentives.
We would certainly expect that to get better and then this is Chad good morning.
Other thing I would say on this I think it's really important with the with the supply demand fundamentals of the industry over the longer term, we see a real opportunity here to <unk>.
Increased pricing over over the rate of expense inflation and Youll see in the new slide that Don mentioned that we added one of the new slides, we added into the investor deck on slide 17 sort of shows what some of that impact is too to creating value for the company going forward, we see a lot of ability that over the longer term as we.
As we look at rate and pricing if we can continue to deliver.
Of our expenses as you think about, um, uh, you know, we're self-insured last year. Um, we saw the the move in uh, the move in from the third parties noise. We had a little bit more visibility into that early in the year, which impacted some of our incentive plans. And so, um, as you think about that margin spread, we certainly would expect that to get, um, a little bit more of a growth between the, the 2. Um, and so I think that, as we as we go through the year and we grow our occupancy. We focus on some of our pricing and our targeted incentives. Um, we would certainly expect that to get better. Yeah. And, and been this is Chad, uh, good morning. The other thing I would say on this, I think it's really important with the, with the supply demand, fundamentals of the industry over the longer term. We see a real opportunity here to uh increase pricing over over the rate of expense inflation and you'll see in the new slide.
Great growth greater than our expense growth that really compounds over time and creates a lot of value.
Great I appreciate that commentary just also one follow up on some of those marketing and targeted pricing efforts.
You have got made good progress with with move in activity I was wondering if you could talk about what progress.
Progress you've made on controllable move outs and if any of these pricing targeted pricing actions have gone to control that.
That Don mentioned that we added 1 of the new slides, we added into the investor deck on slide 17, sort of shows, what some of that impact is, uh, to to creating value for the company going forward. We see a lot of ability that over the longer term as we as we look at rate and pricing, if we can continue to deliver um uh rate growth greater than our expense growth there that really compounds over time and creates a lot of value.
Move out activity.
Yes, I would say that if you think about Oh.
Our controllable move outs that are our attrition rate in total we've been saying we've seen some favorability in our attrition rate I think our controllable move outs have moved around a little bit quarter over quarter, but where we see progress is on our NPS scores the turnover in our communities, which we would fully expect to continue to.
Great, appreciate that commentary. Uh, just also 1 follow up on, uh, some of those marketing and targeted pricing efforts. Uh, you have made good progress with, uh, with move in activity. I wondered if you could talk about, uh, progress, you've made on controllable, move outs, and if any of these, uh, pricing targeted pricing actions, have have gone to control, uh, the move out activity. Thanks.
Where we'd continue to see improvements on our controllable move outs.
Also Dan we have asked our marketing department to put together a program to focus on retention of our residents.
Because reducing those controllable move outs is very important to our occupancy numbers and it has a lot less expensive to keep the residents that you have been to go out and get new ones and so we are heavily going to focus on how do we retain not only are.
We've seen being seen, we've seen some favorability in our attrition rate. I think our controllable move outs, have moved around a little bit quarter over quarter, but where we see progress is on our MPS scores, the turnover in our communities, which we would fully expect to continue to where we'd continue to see improvements on our controllable move outs.
Also been we have asked our marketing department to put together a program to focus on retention of our residents.
Great employees, but also our residents in our facilities longer.
Great. Thank you.
And your next question comes from the line of Andrew Mok with Barclays. Please go ahead.
Because uh, reducing those controllable. Move outs is very important to our occupancy numbers. And it is a lot less expensive to keep the residents that you have than to go out and get new ones.
Yeah.
Hi, Good morning, I appreciate all the color on the sub 70% occupancy band are there any targets you can share for how many communities. You think you can move out of that lower band over the next 12 months outside of the Ventas lease communities and I think I heard in the prepared remarks that there was some softness in move ins early in the quarter can you elaborate on what you are.
And so we are heavily going to focus on how to retain not only our great employees but also our residents in our facilities longer.
great. Thank you.
And your next question comes from the line of Andrew mock with Barkley's. Please go ahead.
Seeing there and how that impacts the occupancy outlook for the balance of the year.
I appreciate all the color.
Yes. Thank you. This is Don I think I think the inside that we've given the under 70% occupancy band is.
Denise I'd share that there is between the disposition one two and the Ventas communities 50 communities.
And so we would expect that the ventas and the disposition one kind of group. The 14 that we originally talked about last quarter would be out by the end of the year. The other dispositions. We said 12 to 18 months so call. It 18 months or 15 communities or the excuse me the 50 communities would be out.
The sub 70% occupancy band, are there any Targets you can share for how many communities you think you can move out of that lower band over the next 12 months outside of the ventas? Lease communities. And I think I heard in the prepared remarks that there was some softness in move in early in the quarter, can you elaborate on what you're seeing there? And how that impacts the occupancy outlook for the balance of the year, thanks.
We fully expect our Swat efforts to take hold and to continue to move those assets out and there was a 38 of those.
In the in the band whether that's by the end of the year or early into next year.
We would expect those to kind of move up and then with one two or three units.
I think that there is a level of variability because it could be one two or three units upper one two or three units down, but where we are very focus is on making sure that we're focused on the smaller communities and making sure that we are getting above that occupancy level. So I think significant progress was made in the second quarter and we.
We would expect that to continue throughout the year, just both operationally and through the disposition efforts that we had.
Yep, thank you. This is Don. I think I think the the Insight that we've given the under 70% occupancy band is, um, Denise said, shared that there's between the disposition 1 2 and the ventas communities. That's 50 communities and so we would expect that the the ventas and the disposition 1 kind of group, the 14 that we originally talked about last quarter would be out by the end of the year, the other dispositions we said 12 to 18 months so call it, you know, 18 months to 15 communities or the excuse me. The 50 communities would be out. We fully expect um, our SWAT, uh, efforts to to take hold and to continue to move those assets out. And there was 38 of those um, in the in the band whether that's by the end of the year or early into next year, um, certainly would expect those to kind of move up and then with 1 2 or 3 units. Um just I think that there's a
And can you comment on the softness that you quoted.
Oh, sorry, I appreciate that that reminder, the softness in the market. If you remember as we came out in the April in our first quarter earnings call. We were impacted with kind of the macroeconomic uncertainty. If you remember the tariffs were in discussions and I think as we saw some of them.
The level of variability because it could be 1 2 or 3 units up or 1 2 or 3 units down but where we are very focused is on making sure that we're we're we're focused on the smaller communities. Making sure that we are getting those above that occupancy level. So I think significant progress was made in the second quarter and we would expect that to continue throughout the year. Just both operationally and through uh the the disposition uh efforts that we had.
And, uh, can you comment on the softness that you quoted?
Some side along with all of the operational focus that we've had what we saw is our occupancy move ins.
Towards the end of May, but more notably in the month of June where we saw our efforts from all of the the move in activity you can see it in our results with having between made June a 50 basis point occupancy increase and then June to July a 60 basis point occupancy increase.
On a consolidated basis I think one thing that I would say about the quarter is there is.
Yes, we do expect the acceleration of the occupancy, we're just coming into our summer selling season and with having as strong of a June as we had with as many move ins coming through again you saw it in the July occupancy Youre, just not seeing the economics in the second quarter, we fully expect to see that and capture that as well as the summer selling season.
Oh, sorry. Uh, appreciate that. Uh, that reminder the, the softness and the market. If you remember, as we came out in the, uh, April in our first quarter earnings call, we were impacted with, uh, kind of the macroeconomic uncertainty. If you remember the tariffs were were in discussions. And I think as we saw some of that subside along with all of the operational Focus that we've had, what we saw is, uh, our occupancy movements, uh, towards the end of May, but more notably in the month of June, where we saw our efforts from all of the, the, the movement activity, you can see it in our results with having between May and June of 50 basis, point occupancy, increase and then June to July a 60 basis point occupancy, increase on a Consolidated basis. I think, 1 thing that I would say about the quarter is there is um,
Coming through the third quarter.
Great and maybe just one more on cash flow I think operating cash flow finished.
Above $80 million in the quarter and increased 50% year over year. It looks like there were some favorable working capital changes. In addition to the better operating performance can you flesh out the drivers there and with a better cash flow. Prior profile. How are you thinking about the capital priorities from here, including growth and maintenance capex. Thanks.
Yeah, we do expect the acceleration of the occupancy. We're just coming into our summer selling season and with having a strong of a June, as we had with, as many movements coming through again, you saw it in the July occupancy. You're just not seeing the economics and the second quarter, we fully expect to see that and capture that as well as the summer selling season coming through the third quarter.
Okay.
I'll start with the adjusted free cash flow and certainly there is working capital variability. If you remember we just finished our actavis fight in the month of July So there would be some accruals there with the change in leadership accruals related to AR.
Severance there and we would expect.
Great and maybe just 1 more on cash flow. I think operating cash flow finished, uh above 80 million in the quarter and increased 50% year-over-year. Looks like there were some favorable working capital changes in addition to the better operating performance. Can you flush out the drivers there and with the better cash flow prior uh profile how are you thinking about the capital priorities from here including uh growth and maintenance capex. Thanks
Working capital to turn in the normal course, there's always a level of variability, but really the driver of the adjusted free cash flow change is in the operations. The underlying operations of the business as we continue to see the business improve and delivering 20% year over year adjusted EBITDA, We certainly expect our adjusted free cash flow.
So to continue.
Again, we haven't changed our guidance and as we start to cash flow and the strategic.
As we're thinking about this how we would use that cash I think <unk> had some of that in our prepared remarks with the dispositions. We certainly are looking at our Capex, we talked about $10 million of additional capex on fresh impressions and kind of front of the house capex at the beginning of the year.
We'll continue to evaluate what that Capex deployment will look like or if there would be other initiatives that we would want to.
To invest in it we will certainly use some of the proceeds from the disposition transactions along with the growing and improving cash flow to reinvest back in the portfolio and we've been seeing some really good results from our initial first impressions investments that we're making as part of some of the.
Adjusted free cash flow as certainly. There is working capital variability if you remember. We, uh, just finished our activists fight in the, uh, month of July. So there would be some across there with the change in leadership across related to, uh, uh, Severance there. And we would expect, you know, working capital to turn in the normal course, there's always a level of variability, but really the driver of the adjusted free. Cash flow change is in the operations, the underlying operations of the business. As we continue to see the business improve and delivering 20% year-over-year. Adjusted Evita, we certainly expect our adjusted free cash flow to, uh, continue. Um, again, we haven't changed, uh, our guidance and as we start to cash flow and the Strategic, um, you know, as we're thinking about this, how we would use that cash. I think Denise had some of that in our prepared remarks, with the dispositions, we certainly are looking at um our capex.
The high opportunity Swat team efforts Youre seeing some really good impacts from that and we know that.
Sort of you've got to through the Swat team efforts one of the first things you look at is the the facility the property condition. So does it mean, some refreshments does it need some carpet paint furniture et cetera, we've been making those investments on the sort of the front of the house to improve the look of the <unk>.
We talked about 10 million dollars of additional capex on Fresh Impressions and kind of front of the house capex, at the beginning of the year. Uh, we'll continue to evaluate, uh, what that capex deployment would look like, or if there would be other initiatives that we would want to, um, to invest in. Yeah, we'll certainly use, uh, some of the proceeds from the disposition transactions, along with the growing and improving cash flow to reinvest back in the portfolio, and we've been seeing some really good results.
<unk> and I think that actually is helping in.
Our results. So as we go forward, we certainly will continue to reinvest in a prudent manner.
And I think thats creates a lot of more upside opportunity.
Great. Thank you.
Great. Thank you and your next question comes from the line of Joanna <unk> with Bank of America. Please go ahead.
Hi, good morning. Thanks, so much for taking the question is actually on a question first of all the free cash flow, so with EBITDA guidance higher.
From our initial, uh, First Impressions, uh, Investments that we're making as part of some of the horror the, the high opportunity, SWAT, team efforts, you're seeing some really good impacts from that. We know that, uh, sort of, you've got to through the SWAT team efforts, 1 of the first things you look at is is the the the the facility, the property condition itself. Uh, does it need some refreshments? Does it need some, uh, carpet paint furniture, Etc. We've been making those Investments on the sort of the front of the house to, uh, to improve the, the look of the buildings. And I think that actually is helping in in, um, in our results. So, as we go forward, we certainly will continue to reinvest in Improvement manner. Um, and I think that's creates a lot of more upside opportunity.
Great. Thank you.
Why is the adjusted free cash flow guidance, not going opposite those items, you had mentioned around the severance and proxy fight or there's something else.
All right, thank you. And your next question comes from the line of of Joanna had a joke with Bank of America. Please go ahead.
That's exactly right Joanna that Theres, just the level of variability with the working capital.
Okay. Thanks for that and then on the if I may on the op Cos twice. So you talk about you know, there's some I guess call it cost burden in the quarter wait and do you expect the kind of fruits of that.
Hi, good morning. Thanks so much for taking the questions actually on a question. First of all, uh, all the free cash flow. Um, so with Eva guidance, higher, um, why is the Justice free cash flow guidance not going up, is it? Um, those items you had mentioned around the 7th, and, um, proxy. So there's something else.
To play out first of the year. So can you help us quantify some of these additional costs in the quarter are.
That's exactly right. Joanna, there is just a level of variability with the working capital.
Are there marketing or other efforts I guess to understand.
The cost structure structure going forward.
Yes, I think Joanna what we talked about for the current quarter is really the incentive that we had.
Pivoted marketing costs, we may have had a small amount of incremental marketing costs, but pivoted marketing cost that maybe were better suited for digital in certain markets or direct mail in certain markets.
Okay, thanks for that. And then on the, if I met on the cost, right? So you talked about, you know, there's some, I guess call it cost burden in the quarter, right? Um, and you expect uh, kind of fruits of that burden to play out the rest of the year. So can you help us quantify some of these additional costs in the quarter, uh, with their marketing or other efforts? I guess um, to understand, um, you know, the the cost charge structure going forward.
But I certainly would say what I think there's a timing difference from the normal incentives that you would see versus the timing of when we're going to get the economic impact of that occupancy. So the occupancy coming through in June later of the quarter, you will see that kind of the economics.
Of those occupancy increases coming through and we did see it in July.
Just because it came later in the quarter and the spend was earlier Theres just a timing.
Alright, so there was nothing else to call out when it comes to the costs.
Correct.
Alright, thank you so much.
And your next question comes from the line of Josh Raskin with Nephron Research. Please go ahead.
Yeah, I think Joanna what we talked about for the for the current quarter is really the incentives that we had. Um we pivoted marketing costs. We may have had a, a small amount of incremental, marketing costs but pivoted uh marketing costs that maybe were better suited for digital in certain markets or direct mail in certain markets. Um but I certainly would say you know what, I think there's a timing difference from the normal incentives that you would see versus the timing of when we're going to get the economic impact of that occupancy. So the occupancy coming through, um, in June, later of the quarter, you will see that come the economics of those, uh, occupancy increases coming through. And we did see it in July, uh, it just because it came later in the quarter, uh, and the spend was earlier, there's just a timing
Alright. Thanks. Good morning, I was wondering if you could speak to your local market strategy and maybe how thats evolved under the new leadership I'm, specifically interested in how you differentiate brookdale from peers at the local level beyond just sort of pricing and maybe what resonates most with prospective residents and families in terms of additional services and things that you guys are provider.
All right, so there was nothing else to call out when it comes to the cost.
Correct.
All right. Thank you. Thank you so much.
And your next question comes from the line of Josh Raskin with Nephron Research. Please go ahead.
<unk>.
Okay.
Yeah, I'll start and then think you'd actually is a great question I'll start and then a chatter Denise want to chime in I think that well, how we're differentiating ourselves really is the quality of care that we provide and so if you think about Denise just mentioned our <unk> are really.
Maybe what resonates most with prospective residents and families, in terms of additional services and things that you guys are providing.
In the local markets pushing the decision making to the EDI level, making sure that they are connected in the local markets and they are knowledgeable about what discounting or what strategy or we talked about capex or NPS scores increasing just.
yeah, I'll I'll
How we're thinking about that locally and it will differ market to market I think what differentiate brookdale is really like I said the quality of care that we provide to our residents.
And so with the rollout of health plus in our communities. We by the end of the year, we expect it to have it in just under 200 communities and so I think that that is certainly something that we have absolutely seen as a differentiator.
And we market that are at the local level, yes, its absolutely a key differentiator I think thats something that we will be continuing to focus on Don mentioned that we're rolling this out we will have it in almost 200 of our communities by year end, we are seeing that the feedback brookdale help pluses as unique innovative program. It's our it's our character.
then, thank you Josh. It's a great question. I'll start. And then if chatter Denise want to, um, chime in, I think that what how we're differentiating ourselves really is the, the quality of care that we provide. And so, um, if you think about Denise just mentioned, our EDS are really in the local markets, pushing the de the decision making, um, to the Ed level, making sure that they are connected in the local markets and they are knowledgeable about, you know what, discounting or what strategy or we talked about capex, or NPS scores increasing just um, how we're thinking about that locally and it will differ Market to Market. I think what differentiates Brookdale is really like, I said the quality of care that we provide to our residents. And so with the rollout of Health Plus, um, in our communities, we by the end of the year, we expect it to have it in just under 200 communities. And so I think,
Ordination program that I think has been very well received.
In terms of it improves.
It improves resident outcomes, we believe it will actually improve.
Length of stay and.
And it's also improving our financial results and so we think it's a key differentiator for Brookdale, it's something that we're going to continue to lean in on very heavily it's something that I think we're already seeing anecdotally. The comments, we received from the field, where we have a health plus community is something that is differentiating us from a sales standpoint.
Unable to lead the new move ins and ultimately it's something good for residents I mean, our our residents who had.
They'll help plus communities.
80% fewer urgent care visits 66% fewer hospitalizations.
Those are really key things that you can sell to residents and family members that.
If you come to a brookdale community you are going to be getting a better quality experience you won't be spending a lot of money going out to the ER visits and hospitalization because.
That, that is, uh, certainly something that we have absolutely seen as a differentiator, um, and we market that at the local level. Yeah. It's, it's absolutely a key differentiator. I think it's something that we will be, uh, continuing to focus on. Uh, Don mentioned that we're rolling this out; we'll have it in almost 200 of our communities by year-end. Uh, we are seeing that the feedback, you know, Brookdale Health Plus is a unique, uh, innovative program. It's our, it's our care coordination program that I think has been very well received, um, in terms of it improves, uh, you know, it improves resident outcomes. We believe it will actually improve, uh, length of stay, uh, and it's also improving our financial results. And so we think it's a key differentiator for Brookdale. It's something that we're going to continue to lean in on, uh, very heavily. Um, it's something that I think, uh, we're already seeing, uh, anecdotally. Uh, the comments we received from the field where we have a Health Plus community, it is something that is differentiating us from a sales standpoint, uh, and a...
We are driving improved results there and so.
We really are focused on our residents were really focused on driving resident satisfaction. Don mentioned earlier, we are seeing improvements in our net promoter score ratings this year.
Over the last couple of years, we're continuing to focus on that and so ultimately it's driving a great resident experience.
able to lead the new move in and, and ultimately it's something good for for residents. I mean, our our, our residents who who've had, um, in Brookdale Health plus communities, get, you know, 80% fewer Urgent Care, visits 66%, fewer hospitalizations, um, those are really key things that you can sell to Residents and family members that, you know, if you come to a Brookdale Community, you are going to be, uh, getting a better quality experience. You won't be spending a lot of money, going out to to, ER, visits and and hospitalizations. But
And making sure that we're that we're focused on them.
That's perfect and maybe just.
To.
Keep going back to the discounting but are there any metrics you can share maybe what percentage of move ins saw discounts versus last year, maybe the average percentage discount versus last year, just anything that can help us track. This because I think there is some attention on that 10 basis point spread at this point.
Calls, uh, we're driving, uh, improved results there. And so we we really are focused on our residents. We're really focused on driving resident satisfaction. Uh, Don mentioned earlier, we're seeing improvements in our net promoter score, uh, ratings this year, uh, that have continued over the last couple of years, we're continuing to to focus on that. And so ultimately, it's it's driving a great resident experience uh and making sure uh, that we're that we're focused on them.
Right I think that we certainly wouldn't.
Put anything else regarding discounting because theres always a kind of a level of discounting that we have.
You can see that in our step down in our Revpar, maybe looking at <unk>.
Looking at the Revpar.
The step down is something that I would I would point to.
That's perfect and maybe just I hate to, uh, keep going back to the discounting, but are there any metrics you can share, you know, maybe what percentage of move in saw a discounts, you know, versus last year or maybe the average percentage discount, you know, versus last year just anything that can help us track this. Because, you know, I think there is some attention on that 10 basis points spread at this point,
right, I think that we, we certainly wouldn't
Again, we will focus on that if I look at the if I look at the export for year over year Josh.
What I would say is that there is some level of variability in the base here, that's causing that to be a little bit closer than we would like.
Again last year, we saw the move in disruption from the third party referrals, we had some visibility into our incentive plans and so on.
Again, there is variability quarter by quarter, but we're certainly very focused on making sure that we are appropriately.
Discounting, which is why I think Denise is talking about <unk>.
Uh, discounting because there's always just kind of a level of discounting that we have. Um, you see that in our step down in our rev poor, maybe looking at um, maybe looking at that the Rev poor, uh, step down is something that I would, I would point to. Um, again, we'll focus on that if I look at the, um, if I look at the export resport year-over-year, you know, Josh, what I would say is that there is some level of variability, um, in the base here, uh, that's causing that to be a little bit closer than we would like, um, just
The the incentives that we're running are more local they're more targeted at the occupancy bands as opposed to spread throughout we're being very.
Very conscious of where that is being done and what we're doing.
Okay. That's helpful.
Thank you and your next question comes from the line of Dow Chu Macquarie Group. Please go ahead.
Again, last year, we saw the move in disruption from the third party referrals. We had some visibility into our incentive plans. And so um, again there's variability quarter by quarter but we're certainly very focused on making sure that we are appropriately. Um, discounting which is why I think Denise is talking about Chad talked about, um, the the the incentives that we're running are more local, they're more targeted at the occupancy bands, as opposed to spread throughout, we're being very, um, very conscious of, of, where that is being done and what we're doing.
Thank you good morning could you help us bridge, the 5% Revpar growth.
Okay, that's helpful.
That you achieved in the first half of the year to year higher full year Revpar guidance range, given the trade off in occupancy and rate. We saw and also how much of that lift will be coming from organic performance and how much from asset divestments. If you could also talk about kind of the EBITDA and free cash flow expectation for the future.
Thank you. And your next question comes from the line of Daou with the Mark McQuarrie Group. Please go ahead.
<unk> heard some how we mentioned on the timing of the Ventas lease transition, but just wanted to size up the potential benefits in the second half. Thank you.
Yes, it's a great question I think the the bridge on the Revpar is certainly the Ventana, we were very clear on that when the Ventas dispositions.
<unk> 55 communities, we're transitioning off that it would be a benefit to them.
Our metrics are our occupancy or revpar metrics and so.
Thank you. Um good morning uh could you help us bring Bridge, the 5% red Park growth in a you know that you achieved in the first half of the Year to your higher full year. Read Pi guidance range. You know, given the trade-off in occupancy and rate we saw and also how much of the lift will be coming from organic performance and how much from assets and Beast. Divestment, if you could also talk about, you know, kind of the EB done and free cash flow expectation for the dispositions. I heard some, you know how we mentioned on the timing of the ventas, lease transition, but just wanted to size up the potential benefits in the second half. Thank you.
I think that would be the bridge from a modeling perspective from first half into second half. We expect if you look at our historical trends. If you look at kind of second quarter to third quarter historical trends I think the step down between third quarter to fourth quarter, which I addressed excuse me between second quarter to third quarter, which I addressed in my.
Prepared remarks.
That step down in 'twenty four would be generally indicative of what we would expect in 2025.
And then I think the ventas impact of the transition communities.
Generally be in the fourth quarter.
Yep. So it's a great question. I think the, the bridge on the on the Rev power is certainly the, the ventas. We were very uh, clear on that. When the ventas dispositions uh, the 55 communities were transitioning off that it would be a benefit to, um, our metrics, our AC, our occupancy, our rev power metrics. And so, um, I think that would be the bridge uh, from a modeling perspective from first half into second half. We expect if you look at a historical Trends, if you look at, you know, kind of second quarter to third quarter historical Trends, I think the the step down between third quarter, to fourth quarter, which I addressed, excuse me. But
Got it and Denise I heard it earlier comment about the work you're doing on the collateralized assets up for refinancing 27, I think you said that the players to bring them out of the collateral pool. Just wondering if you could elaborate a little bit more on the plan there and also curious the second slot.
Between second quarter to third quarter, which I addressed in my prepared remarks that stepped down in 24 of what we would expect in 2025. Um, and then, I think the ventas impact of the transition communities, would generally be in the fourth quarter.
As you deploy there are they doing any anything different versus Q1.
Okay.
Yes, as you know about 88% of our debt is non recourse and is held as mortgages at the property level.
And so we have a debt pool that is coming up.
In 2027, and how how are you.
Got it. And Denise, I I heard that earlier comment about the work you're doing on the collateralized Assets in Upper refinancing 2027. I think you said that the plan is to bring them out of the collateral pool. Um, just wondering if you could elaborate a little bit more on the plan there and also curious, you know, the second slot team that you deploy. There are they doing any anything different versus Team 1.
Uphold the amount of your loan is through your collateral value. So the higher your collateral value, but more at the more dollars you can receive from that loan.
Okay. Um, yes. As you know about 88% of our debt is non-greek course and is held as mortgages at the property level.
Our intention is not to receive more dollars from the loan but to pull assets out of the collateral pool. So we will hold them as unencumbered assets that we can then use later one for additional growth.
And so we have a debt pool that is coming up in 2027. And how, how, how you
Or.
Whatever we need to do as an unencumbered asset.
Uphold the amount of your loan is through your collateral value. So the higher, your collateral value, the more, the more dollars you can receive from that loan.
So that's how we're focused on driving the performance of the collateral pool. So if we can remove assets how hold them as unencumbered to us later on.
And the second Swat team.
Really no different than the first Swat team you are still working on how do you improve the operational performance is just a different set of assets and each asset has its own that need.
Our intention is not to receive more dollars from the loan but to pull assets out of the collateral pool. So we will hold them as unencumbered assets that we can then use later on for additional growth, or, um, you know, whatever we need to do as an unencumbered asset.
And they and they vary our very much our local needs.
So that's how we're focused on driving the performance of the collateral pool, so we can remove assets. How hold them as unencumbered to use later on.
Some might need dining room chairs sunlight knee paint and wallpaper some might need a total redo.
It runs it runs the gamut and it really is property by property by property.
And the second SWAT team, you know, it's really no different than the first SWAT team, you're still working on. How do you improve the operational performance? It's just a different set of assets, and each asset has its own need.
Great. Thank you.
Yeah.
Thank you and ladies and gentlemen that ends our question and answer session for today and ladies and gentlemen. This now concludes today's conference call you may now disconnect.
You know, and they and they vary are very much our local needs, you know, some might need dining room chairs, some might need Paint and Wallpaper some might need a total redo, you know, it runs. It runs the gamut and it really is property. Buy property, buy property.
Great. Thank you.
Thank you. And ladies and gentlemen, that ends our question and answer session for today, ladies and gentlemen, this is now concludes today's conference call, you may now disconnect