Brookdale Senior Living's CEO Discusses Q4 2011 Results - Earnings Call Transcript

Brookdale Senior Living Inc. (BKD)

Q4 2011 Earnings Call

February 17, 2012 10:00 am ET

Executives

Ross Rodman - SVP, IR

Bill Sheriff - CEO

Mark Ohlendorf - Co-President and CFO

Andy Smith - EVP, General Counsel and Secretary

Analysts

Christina Blaishek - William Blair & Company

Josh Marans - Bank of America Merrill Lynch

Bryan Sekino - Barclays Capital

Sloan Bohlen - Goldman Sachs

Daniel Bernstein - Stifel Nicolaus

Rob Mains - Morgan Keegan

Presentation

Operator

At this time, I would like to welcome everyone to the Brookdale Senior Living fourth quarter earnings conference call. (Operator Instructions) Mr. Rodman, you may begin your conference.

Ross Rodman

Good morning, everyone. I'd also like to welcome you all to the fourth quarter 2011 earnings call for Brookdale Senior Living. Joining us today are Bill Sheriff, our Chief Executive Officer; and Mark Ohlendorf, our Co-President and Chief Financial Officer. Also present is Andy Smith, our Executive Vice President and General Counsel.

This call is being recorded. A replay will be available through November 24 and the details on how to access that replay are in the earnings release. This call will also be available via webcast on our website brookdaleliving.com for three months following the call.

I'd also like to point out that all statements today, which are not historical facts, may be deemed to be forward-looking statements within the meaning of the federal securities laws. Actual results may differ materially from the estimates or expectations expressed in those statements. Certain of the factors that could cause actual results to differ materially from Brookdale Senior Living's expectations are detailed in the earnings release we issued yesterday and in the reports we filed with the SEC from time-to-time. I direct you to Brookdale Senior Living's earnings release for the full Safe Harbor statement.

With that, I'd like to turn the call over to Bill.

Bill Sheriff

Good morning and welcome to our call. The company performed well in the fourth quarter, a quarter where there was a lot going on, operating 30% more units for the fourth quarter, adjusting to changes in the Medicare components of our business, all against a backdrop that appeared to be stabilizing but certainly not producing a tailwind.

On the revenue side, occupancy improved and pricing was stable. We increased sequential quarter average occupancy by 40 basis points for the consolidated portfolio. Our retirement center segment, which represents 30% of our consolidated units, increased sequential average occupancy by 50 basis points to 88.9%, its highest occupancy since the first quarter of 2008. That was also the highest average rate for that period.

With over 75% of the retirement center units being independent living, we are seeing the beginnings of a rebound in independent living occupancy, which is the result of the continued upgrading of this product line and the increased supporting services in our independent living product.

Our assisted living segment hit 88.7% occupancy, its high for the year. And the CCRCs occupancy remained leveled in spite of a skilled nursing census that decreased slightly in line with reduced hospital discharges.

The fourth quarter was also good for the number of independent living entry fee sales. We closed on 85 sales this quarter versus 73 in the fourth quarter of 2010, producing over $13 million of gross entrance fee proceeds. We did have an abnormal spike in refunds with a higher than normal proportion of high refund contracts terminating, but still produced over $9 million of net entry fee cash flow.

Looking at pricing, one has to remove the effects of the ancillary services and Medicare skilled nursing reimbursement reductions. Without RUGS-IV impact, same community growth rate was approximately 2% for the fourth quarter, in line with the third quarter and the same level as the year ago. That same adjusted growth rate for the first and second quarters of 2011 was approximately 2.5%. While flat, as we have said before, occupancy increases will lead any significant pricing growth.

Our ancillary services expanded its footprint slightly and produced revenue growth of 7% for the fourth quarter over the fourth quarter of 2010. While volume increased, the impact of the rate cuts and procedural changes reduced margin and reduced ancillary services' operating income contribution by 5% quarter-to-quarter.

Our Hospice initiative continues to make progress. We now have markets fully operational. Two more markets are bound to be surveyed and have four more markets targeted to begin application survey process this year.

All in all, we produced over $104 million of EBITDA, a $64.8 million of CFFO in the quarter, excluding the integration and transaction-related costs largely related to Horizon Bay.

Now taking a moment to reflect back on the full year, our organization has performed well. We purchased and successfully integrated the ninth largest operator, adding 30% to our portfolio. As a part of the transaction, we created our first RIDEA joint venture, thus creating an alternative financing model for future growth.

The Horizon Bay acquisition was far more strategic than the numbers will ever suggest. While the fit with our portfolio and our targeted markets was great, it was also a huge test of our platform's capabilities. In a short period of time, we were able to hold the communities into our operations and integrate them into our systems. The key to the rapid integration was how we successfully merged together the cultures of the two organizations.

Additionally, during the year, we adjusted to what appeared to be a very different economic scenario than we had expected going into the year. The marketplace became more challenged, and in the second quarter, we had a declining market. We became more competitive and overcame the second quarter's occupancy test to actually finish the year with full year average occupancy 20 basis points ahead of prior year.

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