Brookdale Senior Living Inc. ($BKD)

I cover health care providers for Bank of America. And now it's my pleasure to host this session with Brookdale, the largest senior housing operator and owner in the U.S. And today, we have Nick Stengle, who's the CEO; and Dawn Kussow, who's the CFO. So thanks so much for being with us today. And I want to ask, are you ready to go into Q&A or you want to start with something?

Q&A sounds great.

We can jump right into it. I'll share a few words upfront. So first, thanks for having us. Very excited to be here, both for those who are listening and those in the room. Part of the story, and it's been showing up in our earnings call, it showed up in our Investor Day that we did at the end of January is a new era opening a new chapter for Brookdale. So a lot of folks know the Brookdale story. We've been around for many years, many decades, a lot of permutations, obviously, COVID being a big part of the senior living industry and for sure, Brookdale. But now part of it is me coming in as the new CEO, but truly, it's where we are as a company with a lot of things that burdened us in the past, whether it was acquisitions, whether it was leases we had, whether it was COVID, whether whatever it was, we -- that is becoming further and further in the past and part of the history of Brookdale as we open this new chapter. And I'm sure some of the questions will kind of take us down that path. So excited to be here.

No, thank you. And yes, I want to talk about that. But maybe before we talk about kind of the long-term outlook, maybe just on the quarter and the guidance, right? Because I'm getting a lot of questions about the kind of the trajectory. I really appreciate one of the slides when you kind of talk about like quarter-by-quarter, giving people direction on like what to expect in terms of the top line and EBITDA growth. So that was super helpful. But even with that, I guess, people looking -- investors looking at the history of the company and they say, "Hey, like this seems to be like historically, Q1 was always the best EBITDA quarter. But like the comments imply that actually might not be the case. So that's where like everyone gets confused. So maybe walk us through like kind of like what's driving the ramp from Q1 that we have kind of the visibility in Q2 and then as the year progresses?

Yes. It's a great question, Joanna. I think that there's 3 things that I would point out, our occupancy, our RevPOR-ExPOR spread and the fact that we have more communities kind of above that 80% occupancy level where we expect to see more of the flow-through from that spread. And then there is to -- more of a secondary is the fact that you will get some accretion impact from the dispositions that we're doing throughout the year. So typically, our seasonality with our occupancy is -- will decline in Q1, which is what we had a 40 basis point decline in the first quarter. We'll start to grow our occupancy in the second quarter. You saw that in April. And then our third quarter is our summer selling season. So the fourth quarter will absolutely benefit from that larger occupancy growth, coupled with the fact that we already put a high single-digit rate increase in on January 1, and we've seen our financial move-outs. That's kind of the indicator for us is we've seen our financial move-outs act the way that we expected them to and then trend down in April. We spent a lot of time last year focused on occupancy growth and really trying to get that fixed cost leverage as you grow your occupancy above that 80%, you have a little bit of a higher flow-through. So last year, when we accelerated that occupancy growth, we expect to see the benefit as we grow that occupancy from the first quarter through the fourth quarter. And then again, secondarily, we're disposing of some communities that are underperforming assets, and we expect to see a smaller accretion impact from that. And so as you pointed out, I think Slide 12 is absolutely something that I would point investors to that will show the pacing just kind of with the noise that we had in 2025. And then maybe just as a comment, if I look back to 2025 and the pacing of our adjusted EBITDA, there is a lot of noise in there. The front half of the year benefited from the fact that we were doing cost cutting in order to account for the dispositions that we had. And then there was some disposition headwinds in the second half of the year. But if I look back to '24 and '23, the pacing of our EBITDA is generally falling in line with what we would expect.

And I'll add, and obviously, everything we just discussed so far is really about the modeling and the numbers, but I think there's a real other impact, which is you can't model. It's the transformational changes we have undergone in Q4 and Q1, a lot of changes, the way we are organizationally, obviously me coming in as the third CEO in under a year, the way we are having a new COO, the structure, ops, clinical and sales all reporting under one, going from 55 districts to 48 to 43, all in the order of 5, 6, 7 months and a lot of it in Q1. So again, 0 regrets despite the disruption because it's absolutely critical fact. If anything, the fact that we did it during the lull of winter feels even better as we enter the summer selling season. And as we go into Q2, Q3, Q4, all those changes are further in the past. And the changes are in effect now already baked in. In fact, one of the questions we often get is, well, what's next? What else is going to change? We've made the decision. We have the right people, the right organization, the right portfolio, and we have another, I think, 19 communities to dispose of in the next several months, at which point we will be stabilized fully. So feeling really good about optimally now running a company despite a lot of change in the recent past.

No, exactly. And talking about growing occupancy, right, you -- you kind of gave us the guidance that you expect occupancy for the year to be about 83%. And I guess, looking back '25 was, call it, 81% or so. So how much of it comes from just, like you mentioned, the age and demographics, just like more demand. But obviously, to your point, there's some tailwinds from execution of the changes you were doing, the focus on the lower occupied units and some other changes you're doing. So maybe kind of help us walk through like the different drivers? And is there any way to kind of like say, hey, without maybe being able to quantify specifically about like which is the biggest driver and then the second and third and so on?

Yes. So there's an undeniable undercurrent to the senior living industry at this very moment. People talk about the silver tsunami, they talk about supply/demand. Some people talk about the golden era of senior living is starting right now. And we are in the middle of the golden era of senior living right here in 2026 or 2027, 2028. So the demand signal undeniable with the 80-plus population growing at a 4% to 5% CAGR beginning this year, new supply, record low. NIC just reported their Q1 numbers, new record low inventory growth, new record low new starts, new record low units under construction. So undeniably, we are in the middle of that, and that underpins a lot of the growth story of our company, just as much as our peer companies, the REITs that are in the space. So that's the context that we're writing in. The next part of it is us, Brookdale, sitting at an 82.3% occupancy and knowing we have nearly 18 points of occupancy before we're fully occupied. So in other words, a lot of runway, a lot of opportunity to grow that occupancy. Finally, with the right portfolio, I keep alluding to this and for those that have followed the story, we were at 1,200 communities, call it, 12 years ago, every year, shrinking our community count until right now where we are, we're finally stabilized with the right portfolio in the right locations with the right team and just as importantly, the right organization. So I'll tell you, Joanna, I mean, nearly impossible to say, well, it's this -- I mean I'd say it's 50-50, great market, great industry. We're in a great position to capitalize on it with the most runway ahead available to do something with that.

Exactly. Sorry, go ahead.

I would just add in specifically to Brookdale. Nick has talked a lot about network selling and selling within a network. We continue to work through our SWAT teams to drive our occupancy and making sure that we're focused on the low occupied communities, but just making sure that, that focus is there. So specific to that, those are some of the things that we'll continue to do.

Exactly. And also, you talk about, right, getting to a 90% occupancy or even higher, right? And you're kind of on the right trajectory there, right? But what is the realistic time line without being specific? Because obviously, we know like you expect getting to 83%, but then still, there's 700 basis points or so to get to like a 90. So I guess the question is how quickly can you get there?

Yes. So I mean, obviously, we wouldn't disclose a specific target even though we do talk about it. So we're at 82.3% today. Just prior to COVID becoming an issue, so call it, February 2020, I think we were at 84%. Our company's all-time record high was 89% just prior to the Emeritus acquisition going back to 2015, '16, I believe I have my years all right. Obviously, they predate me by a little bit. So those are all the benchmarks. So we feel very confident that, that's the benchmark we're marching through. We already shared that we're looking to be above 83% for the full year in 2026. So that means month end as we exit 2026 will be something well north of 83% when you account for the full weighted average. So I'll tell you, I mean, again, some other data points, we grew our occupancy by 280 basis points in 2025 compared to 2024. So as you triangulate all those things, can we get 1, 2, 3 points of growth per year? I think that's a very comfortable directional thing. Again, we have quite a bit of runway to 100 coming from 82%. The other reality though is -- so 90% is a great benchmark. But for us, as with every occupancy point of growth in total in aggregate, what that means is we have more communities that are above 90% and 95% and 100%. And we're shifting all our communities in our unit count to that higher occupancy. So whether it's 83%, 84%, 85% or even 90%, the NOI accretion, the margin expansion that occurs because we have more and more communities that are fully occupied, that's where the real magic happens. So 90% is a great benchmark because that's where we were just prior to the Emeritus acquisition. So it's a nice internal milestone. But the reality is continuing to grow our occupancy meaningfully every year, specifically as you look at the different bands, that's where the real value comes in our company.

And I was thinking about the occupancy levels, and we hosted a call with NIC, and we're talking about the occupancy, the single occupancy units versus the double occupancy units. So can you remind us the mix for your portfolio? And also like how does the occupancy vary when you have the communities with like only single occupancy units versus double and also kind of where are the trends in terms of like the demand?

We have a few double occupied units with where it is -- we'll say, door knobs versus beds. I won't say it's a few -- I don't have the exact number. It has a little bit of the impact as comparing to NIC because the difference that we have when we report our occupancy is, call it, a room with 2 beds. If one of the beds is filled, we'll report 50% occupancy. NIC will report 100% occupancy. And so there is a little bit of a variance between when you're looking at the NIC industry data as opposed to how we report occupancy. And I think we're generally in line with how others are reporting it, but there is a little bit of a variance there.

And I remember we're talking about this that's one dynamic, but you also have like the studio versus the single versus double. So can you talk about that because that's very interesting that there are some markets where there's a lot of demand actually for the bigger units, right?

Let's talk through that. It's actually quite an insightful question. The first cut though, really is by product type. So it's IL versus AL versus memory care. And typically in our industry for sure Brookdale, quite often you mix. Sometimes you have AL with memory care, sometimes you have IL, you have all 3. There are many different kind of formats that exist. Sometimes it's stand-alone. But quite often, when we talk about occupancy even our own numbers, it's all aggregated, right? But the reality is if you look at a specific community and the most prototypical model is AL, assisted living with memory care. Even if the overall community, say, at 85% occupancy, which is then how we report in all our bands and all that stuff, the reality is the memory care might be 100% on a waitlist. And that happens more often than you would think where AL is, call it, 60%. So then in aggregate, it's 80% but the pricing power, the decision-making, how we think of the business is really by product type because we're serving the needs of a customer, and they have a specific -- whether it's an AL or memory care need. So even as you just bifurcate at that first cut, there's some interesting things that occur with regards to pricing, with regards to NOI that exists just within the product type. And then you go one step deeper, there's actually this idea of studio, 1-bedroom, 2-bedroom where there's a different occupancy. And I've now visited probably 60 or so of our communities. And quite often, we'll walk in and they will share, look, all our 2 bedrooms are full with a waitlist, and we have 6 open studios. So obviously, the demand signal is the residents, prospective residents really love the 2 bedrooms. So then the question is how can you take -- how can you account for that in your pricing methodology, more premium pricing on the 2 bedrooms, maybe discounting on the studios. maybe you come in on a discount for the studio and then you're at the top of the wait list as soon as a 2-bedroom opens because that's really what you want. Those are all the types of options that we have available at Brookdale because of our size and the different formats. And by the way, it also occurs across markets. So if a very desirable community happens to be full across town, there's one that has lower occupancy. We can quite often move a resident in with an understanding that as soon as the unit becomes available where they really want to be, they get first pass at that community.

Right. So maybe yes, we should talk about the pricing strategy because clearly, you're doing a lot of work around that, right, and you're changing things around in the company. So maybe talk about kind of -- this year, you told us already where you took higher in-place rate increases than maybe in '25, like high single digits on average. And I guess I was asking this question on the call, but I'll ask it again because clearly, you have more pricing power, right? So for the communities at higher occupancy versus the low occupancy, how are you kind of driving this pricing?

Yes. So obviously, that high single digit is a single aggregated number across hundreds of communities and hundreds of product types and even more numbers of product types. The reality is in communities that were 90% plus occupied, the in-place rate increase was actually closer to low double digits. In fact, it was low double digits. In fact, that kind of signals what is possible as you get more and more communities that are highly occupied, the pricing power that's available to you. And you can even see it in some of our peers who are fortunate to have 87%, 88%, 89% occupancy, their RevPOR numbers look quite different. And as we march in that direction, we will have a similar RevPOR strength. So that's one side of the equation. The other side of the equation is where you have communities that are 60%, 70% occupied, obviously, you're going to not have the double-digit increase. You're going to have a mid-single digit. In aggregate, it's that high single digit. But again, the real pricing strategy is to go just one layer deeper to say not only do we do this the community, we do it by the product type. Again, I already hinted memory care 100% AL, 60% is one scenario. They're in-place rate increase, the overall market increases are very different by product type based on the demand that exists in that specific market in that specific community. So again, that's a level of sophistication that we are evolving very rapidly. I've mentioned a couple of times, we hired a Senior Vice President of Strategic Operations, a new role for our company and pricing is one of those things that is directly tied to this role where as a company, we're on a journey that we want to enable our communities. We want to empower them and allow them the freedom to make decisions. Pricing is one of those decisions that you hold a little more closely centrally because of the analytical rigor you need, the discipline you need, we can drive those -- that decision-making a little bit better out of the central position than you can within each community.

So you're saying there's -- sorry, there's some efficiencies doing it centralized because you have access to more data and you can do more analytical work.

It's less efficiency, it's more effectiveness. So it's also efficient, but you can make better objective decision-making with a deeper knowledge on the analytics, but still bring in the local market experience. So it really -- it's kind of a two-pronged approach, the up and the down to find the right number. But for sure, looking at highly occupied communities, we should be driving a premium price, and we will make sure that we do that with our pricing team.

No. The one thing I would point people to is in our investor deck. In there, we have a slide that shows our owned communities, our owned units by occupancy band and the adjusted EBITDA on a per unit basis. So if you look at the fourth quarter to the first quarter, you can absolutely see that increase in the adjusted EBITDA on a per unit basis, driven largely by the fact that we had an in-place price increase and that higher occupancy band as opposed to kind of the under 70% occupancy where that adjusted EBITDA on a per unit basis didn't grow quite as much. And so you can see that pricing power that Nick is talking about coming through in those numbers.

In fact, let me just add one more because it is a very powerful slide that really underpins the value story for our company. So not only is it the delta that Dawn just highlighted from looking at our Q4 deck versus our Q1, looking at the price difference with the higher occupancy, the EBITDA just is much more meaningful ramp-up. But even just look at the absolute EBITDA per unit for the highly occupied, the top of that chart versus the low. On the low end, it's $5,000, I think it's $4,800, if memory serves, $4,800 of EBITDA per unit compared to the exact same unit, but now it's in a highly occupied community, it's $21,000. So there's $4,000 more of EBITDA generated per unit because you are in a more highly occupied state. And again, it has to do with our fixed cost that exists and the operational gearing, the operational leverage that exists. It's the pricing power that you have when you have higher occupancy, and it shows up truly in our numbers.

Right, exactly. So that's where I was heading in terms of the EBITDA growth outlook, right? So not just for this year, but you talk about that growing EBITDA in the teens going forward. So kind of -- I mean, it sounds like an easy task, but help us kind of maybe quantify or rank order the main drivers, the pricing, the occupancy, anything else that you want to call out in terms of how you -- what are the building blocks essentially for this 15%, call it, EBITDA growth going forward?

Yes. I think I can start. I think it's obviously occupancy, it's our pricing and then the RevPOR-ExPOR spread. And so just taking those one by one is we will always look at occupancy and pricing together, I guess, just as RevPOR is really what we are solving for. And so making sure that everything Nick just talked about with pricing on -- pricing the lower occupied communities to get up above our fixed cost structure, so the flow-through becomes so much higher. And so making sure that we're balancing our RevPOR, all while making sure that, that rate increase that we put in as an in-place rate increase is above our expense growth because as you get above your fixed cost structure, you put the rate increase in and you get much more of a flow-through into the bottom line. And so as we move communities up, that expectation for that RevPOR growth translates into conservatively mid-teens growth. So that's how we think about our model. And then just -- I mean, maybe just commenting on our expense side, 65% of our cost base is labor. And so it's making sure that we -- number one, we're looking at our wage rate. Number two, we're looking at productivity of our hours and what hours were -- what hours our teams are spending and making sure that we're appropriately staffing our communities. And one of the things that we've seen in the most recent months is turnover has gone down, our retention of our associates has gone up. And conversely, our NPS score, and that's all translating into an NPS score that's really high. So when you have a staff that has low turnover, high retention, they naturally become more productive, although we're kind of looking at how those communities should be staffed at the occupancy levels that they're at.

And in terms of your competition, I want to ask whether things change in your markets in terms of the pricing behavior because clearly, you're trying to be more strategic about pricing these units in the community. So are you seeing anything that changes? And also from the resident perspective, of course, you alluded to this that with the high single-digit rent increases in January, there were some financial movements, obviously, maybe a little bit more, but it sounds like it was sort of better than you had expected. So kind of talk about the competitive dynamics, but also in terms of like how the residents or the potential residents respond in the marketplace?

Yes, I'll tackle the second part, and then it will lead right into the first part. So every January 1, we, as many of our peers, will do an annual rate increase, an in-place rate increase for all existing residents, the majority of them. In 2026, we pushed, again, that high single digit, which was very closely aligned to what we did in 2024, which is higher than 2025. So that's kind of the setup. So we monitor our move-outs very closely, and we classify and categorize every single move-out in one of the codes that we classify as for financial reasons. And what we see every January, whether we push a big in-place rate increase or a lower one, you do see a slight increase in financial move-outs in the months of January, February, then it slowly gets back to the norm for the remainder of the year, then January comes again, you see a slight increase. So it's a very typical model as we do our in-place rate increase. It just gives an opportunity for residents to go shop around and go elsewhere with a higher in-place rate increase, sometimes you see a slightly higher signal, which is exactly what we saw. It was completely expected, and it was entirely in line with what happened in 2024. So the experience this year, the increase we were expecting, the slightly higher increase we were expecting and everything played out exactly as we had expected and hoped. The good part of all this and why we feel very confident that it was the right decision was very sticky. That move-out for financial reason always drops in the month of March and then April and then May keeps going down, and it's done exactly that. So whether you did a big in-place rate increase or a small one in January, we're back right to where we were with our move-out pace because of financial reason, which is indicative of the stickiness of the decision and the overall market dynamics and the overall occupancy and where the industry is heading.

And I want to follow up to what you said, Dawn, around the labor stability there and sounds like turnover is lower. But I want to ask specifically if you can comment on the 3 key positions at your communities because during the history of the company, there were periods where disruptions were, a lot of executive directors were leaving and also you have like the wellness directors. So bring us up to speed where you are with that particular group, which is very important at the community level, right?

Yes. The 3 -- I would say that we're pleased with the retention. We have the lowest ED openings. We look at all of our -- we look at the ED openings. We monitor ED openings, knowing how important that role is in our communities and the stability of the community. And so very pleased with the number of ED openings is at an all-time low. The turnover on our key three is also at an all-time low pre-pandemic or in the most recent history. And so looking at that, it is absolutely translating into, like I said, a high NPS score and productivity in our communities. And you can see it starting to come through as we monitor our labor, our expenses and frankly, the occupancy growth.

Yes. So you can draw a direct line. It's an undeniable correlation between ED turnover, having an ED opening position in community, the NPS of that community and the NOI margin or NOI dollars generated in that community. Either all 3 are great or all 3 are really poor. They're always directly aligned. So again, I'll repeat a few things Dawn just said, record low ED openings, the lowest we've ever had. I don't know if ever -- for sure, recent history when we say recent really since COVID, lowest ED turnover, the lowest overall associate turnover, and that even goes before COVID. So going back to 2019, our overall associate turnover is the lowest it's been, which then is tied to our highest NPS in recent history again since COVID. In fact, the most fascinating part, typically, our NPS, we do a very good job, very robust NPS tracking, i.e., what do our residents truly feel. And by the way, it's showing up in our low move-outs. Typically, Q1 is the lowest in the year, and that's because we just did a rate increase on everybody. So we do a rate increase. We say, "Hey, love that you're here, but now we also want to survey you what do you think? And obviously, so Q1 is usually the lowest, Q2, Q3, Q4 just increase. This Q1 2026 was the highest NPS we've had in Q1 since COVID. And we also paused NPS through COVID. So feeling really good as far as the green signal with resident happiness, resident experience engagement, and it's all very closely tied together. So again, a lot of the changes we've gone through 0 regrets, they are disruptive, but it's what defines who you are as a company and the culture and then it manifests itself very rapidly in the residents and the resident experience and the choices they make. They choose to move in and they choose to stay, which is exactly what we're looking to do.

No, exactly. And I want to switch gears and talk about cash flows because obviously, another success story is the free cash flow turned positive. So it was for us like a turning point looking at this entity. And from here, right, there's a lot of debate around the CapEx and free cash flow, you no longer guide. So like we kind of like it that way because we prefer you. You make these decisions and you strategically put this money to work where it belongs. So maybe walk us through how you're thinking about it. I know you don't have guidance, but thinking about operating cash flow and kind of the uses for the cash flow and also in terms of the CapEx, kind of how you now going forward, deploy that?

Sure. I'll start out with we still expect in 2026 to have strong adjusted free cash flow. We guided to CapEx of $175 million to $195 million. And so we expect to spend that because all of the reasons that we've been -- as we think about our capital deployment, Nick had said we have 18 basis points of opportunity in front of us. And as we deploy capital into our communities, that organic growth will naturally flow through into our adjusted EBITDA with a strong return to our shareholders. We put a slide in our investor deck. It shows 3 separate projects on top of the fourth project that if you came to our Investor Day, you visited one of our communities where you saw just kind of the -- what investing CapEx in a community could do. And so just to show in a 20-year-old building, if you spend $1 million, $1.5 million, you can get a 40% return just by the growth in the occupancy. So make sure you take a look at that. But that's kind of the thought process around not only that larger CapEx dollar spend if we want to do larger projects, but also things like fresh impressions we've been talking about for a couple of years, that has a very large return as well. And so we think that the largest return for our capital deployment right now is really just investing in organic growth as well as the fact that we -- Nick has talked a lot about a bingo card and maybe 1 or 2 acquisitions that we'll -- maybe I'll let him comment on.

Yes. So we now have the wherewithal, the free cash flow, the position that we're actually looking to acquire. So I earlier hinted 12, 14 years of declines in unit counts. We're actually looking to make some targeted acquisitions. Now it's 1, 2 communities. It's specifically in markets we're already in. We call it we're in 125 markets, no desire to be in the 126th market. We're in 41 states. No desire to be in 42 states. That's not our growth strategy. Our growth strategy is to fill the communities that we have unoccupied units. And then if there's a part of that market, call it, in Kansas City, where we don't have the community in the right geographic space, we can acquire a single type of community. And if I said an 18 basis point improvement, which is what you said it's 18 percentage points. So with that 1,800 basis points, if I can do the math right. So that mean it's 18 points of runway ahead of us.

Exactly. And last question, I guess. So the only thing I can think of in terms of just like the risk is, obviously, if supply ever comes back and doesn't -- this doesn't seem like there's any indication out there. But is there anything else that kind of keeps you up at night, so to speak?

I mean, yes, a lot, but no, not from the market. I mean the market is stable. I mean, we are entering the golden era. So the demand undeniable. I mean, take that to the bank. Supply, that is the X factor. But every metric you can measure the unit growth, new supply, units under construction, all record low. And even if a bunch of money started chasing that supply growth today, it's not going to be 5, 6, 7 years before that becomes resident move-in #1. So at this point, at this very moment, we have minimally a 5-year runway of no supply growth. I would argue, 6, 7, 8, 9, 10 years. And by the way, at that point, all it is catching up that demand signal anyway. So the disparity between supply and demand has already occurred and is already starting to bake into the industry.

All right. This is perfect timing because we just ran out of time. So thank you so much. Thank you for coming.

Thank you, Joanna. Thank you. Thanks, everyone.