Brookdale Senior Living CEO Discusses Q2 2012 Results - Earnings Call Transcript

Brookdale Senior Living, Inc. (BKD)

Q22012 Earnings Call

August 7, 2012 9:00 am ET

Executives

Ross Roadman - Senior Vice President of Investor Relations

Bill Sheriff - Chief Executive Officer

Mark Ohlendorf - Co-President and Chief Financial Officer

Analysts

Kevin Fischbeck - Bank of America

Ryan Denials - William Blair

Daniel Bernstein - Stifel, Nicolaus

Greg Kuhl - Brookfield Investment

Presentation

Operator

Good morning. My name is Jody and I will be your conference operator today. At this time, I would like to welcome everyone to the Brookdale Senior Living second quarter earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer session. (Operator Instructions)

Thank you. I would now like to turn the conference over to Mr. Ross Roadman, Senior Vice President of Investor Relations. Please go ahead, sir.

Ross Roadman

Thank you, Jody, and good morning, everyone. I would also like to welcome you all to the second quarter 2012 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.

As Jody mentioned, this call is being recorded. A replay will be available through August 14, and the details of how to access that replay are in the earnings release. This call will also be available via the webcast on our website, www.brookdaleliving.com for three months following the call.

I would 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 earning release we issued yesterday, and in the reports we file with the SEC from time-to-time. I direct you to Brookdale Senior Living's earning release for the full Safe Harbor statement.

With that, I would like to turn the call over to Bill Sheriff. Bill?

Bill Sheriff

Good morning and welcome to our second quarter earnings call. Today, I am pleased to share an overview of our second quarter results. Mark will review our financial results in more detail. After our remarks, we would be happy to take your questions.

During the second quarter, more evidence confirmed that we maybe experiencing gradual improvement in our industry's fundamentals. While the global macro economic environment certainly remains unsettled, we see signs of improvements in our markets. We have continued to see improving demand in independent living and as I will talk about in a moment, we saw that improvement particularly in the second quarter in our independent living entry fee unit sales where we saw record results. That specific product is more sensitive than the others to local existing market of home re-sales.

There has been expressed some sentiment that 2012 is marking the beginning of a true existing home re-sale market recovery. There is a bullish new forecast and supporting analysis release by Harvard's Joint Center for Housing Studies which suggest that the net result of maturing echo boomers and aging baby boomers likely downsizing could result in a near doubling in household formation rates.

They also observe the fact that multi-family apartment rents are rising which is helping to stabilize home prices. Now this should bode well for the existing home resale market. The recent (inaudible) of pricing data also was encouraging.

The aging acuity trends translates into an increasing need for senior services and an improving existing home resale market will assist in the decision making process as people sort through the affordability of senior housing and the various options available to them.

For the quarter, we achieved CFFO of $69.2 million or $0.57 per share, an 11% increase over the second period of 2011. The increase was driven by key revenue drivers, occupancy, entry fee sales, pricing growth and increased management fees. As Mark will detail, the quarter's results were achieved in spite of some insurance reserve adjustments that showed up as operating expenses.

Looking at occupancy, we increased quarter average occupancy by 110 basis points for the consolidated portfolio over the prior year. Sequentially, our overall occupancy was essentially flat with the first quarter. Excluding skilled nursing, our occupancy was actually up 10 basis points from the first to the second quarter.

Two items to note about our skilled nursing occupancy. First, there is a typically a seasonally decline from Q1 to Q2 which we again experienced this year. Second, we acquired a nearly empty skill nursing community mid-quarter which impacted our skilled nursing occupancy percentage. It was a good deal and we acquired this skill nursing as part of Program Max to ultimately add this service level to one of our larger retirement centers and we are in the process of filling this community.

Story of Q2 was our independent living entry fee sales. Our 106 sales and $14.3 million of net entry fee cash flow were record highest. We have seen improving entry fee sales activities since mid-2011. This improved activity carried through to the first and second quarters of this year. This improvement has been evident across nearly all of our entry fee markets but particularly in Florida and it has continued through July with a strong number of deposits.

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