Hello, everyone. Thank you for joining us and welcome to the Brookdale Senior Living second quarter 2026 earnings call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. I will now hand the conference over to Mike Grant, Brookdale's Vice President of Investor Relations. Mike, please go ahead.

Thank you, Operator. Good morning, everyone, and welcome to Brookdale Senior Living's Second Quarter 2026 Earnings Call. Participating on today's call are Nik Stengle, Brookdale's Chief Executive Officer, Dawn Kussow, our Executive Vice President and Chief Financial Officer, and Chad White, our Executive Vice President, General Counsel, and Secretary. On today's call, we will discuss Second Quarter 2026 results as well as our financial guidance for the 2026 year. will also provide other general business updates. During today's call, our remarks, including our answers to your questions, will include forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act. These statements are made as of today's date, and we expressly disclaim any obligation to update these statements in the future. Actual results and performance may differ materially from forward-looking statements. Certain of the factors that could cause actual results to differ are detailed in the earnings release we issued after market yesterday, as well as in our Securities and Exchange Commission filings, including the risk factors described in our annual report on Form 10-K and quarterly reports on Form 10-Q. I direct you to the earnings release for the full Safe Harbor statement. Also, please note that during this call, management will discuss non-GAAP financial measures. For reconciliations of each non-GAAP measure to the most comparable GAAP measure, Thank you, Mike, and good morning, everyone. Thank you for joining us on this morning's call and for your interest in Brookdale Senior Living.

Thank you so much for joining us. Thank you for joining us today. 2. Optimize our real estate portfolio 3. Reinvest capital into our communities 4. Reduce leverage 5. Elevate quality for residents and associates I would like to take a moment and describe our recent progress on the first three points. On point number one, improve operating performance. Our consolidated REVPAR for the second quarter increased 8.2% over the prior year, which is in line with the anticipated quarterly pacing we discussed last quarter. This meets our 8-9% full-year 2026 REVPAR growth guidance, and we continue to expect an accelerated rate of growth for the second half of this year. Breaking apart the components of REVPAR, our second quarter REVPOR – Revenue Preoccupied Room or pricing – remains strong. Our second quarter consolidated rev pour increased 5.2% over last year. As a reminder, we took high single-digit pricing at the start of this year, and we are now beginning to lap the price concessions taken last year. On the occupancy side of the equation, second quarter consolidated occupancy landed at 82.4%, up 230 basis points year-over-year and a 30 basis point sequential improvement from the first quarter of 2026. Candidly, our occupancy growth thus far in 2026 has not inflected as quickly as anticipated, but with our new operating structure and team in place, as well as the actions we have taken, we see underlying improvement that is beginning to bear fruit, as shown through our July occupancy results, which I will cover in a minute. Additionally, given where occupancy stands through mid-year, we have taken steps to ensure that our cost base is scaling in line with our occupancy levels. During the second quarter, we continue to realize improvement within our occupancy bands. Thank you for joining us. Year over year, we had stronger improvement as 281 communities were below 80% in the second quarter of last year. We are taking targeted actions to drive accelerated improvement in those levels through the second half of the year. We are now entering the heart of the summer selling season and our initiatives are taking hold. As referenced earlier, July occupancy marked a strong acceleration, up 30 basis points sequentially on a same community basis and up 20 basis points sequentially on a consolidated basis. Our month-end occupancy results were also strong. up 30 basis points sequentially for same community and up 40 basis points sequentially for consolidated. This improvement represents our 57th consecutive month of year-over-year occupancy growth. While we are encouraged by the pace of our move-ins and overall occupancy over the last two months, we recognize that we can do much more and as a result are taking further actions to drive improvement. To that end, a key action in the past quarter was the hiring of Margaret Cabell as our new Chief Sales Officer, filling the vacancy we have had in this role since the first quarter of this year. I'm really excited about adding Margaret to our executive leadership team. She brings over 25 years of senior housing experience. While most of this experience has been in sales leadership, she also has meaningful operational and P&L ownership experience, which bolsters our new organizational structure that fully aligns operations with sales. Most recently, she served as Chief Community Relations Officer and Head of Sales for A Place for Mom, which, as many of you know, is the leading senior care referral service in the United States. In the short period Margaret has been with us, we are already seeing measurable changes in key sales-leading indicators to include conversion ratios, sales yields, and improvements across our referral channels. Thank you for joining us today. Thank you for joining us. In fact, we now see additional opportunities to improve labor productivity in the second half of this year, so we would anticipate increased operational leverage over the significant expense driver looking forward. I would also like to take a moment and discuss strategic objectives number two and number three, which are our portfolio optimization and capital deployment strategy. As we discussed at our Investor Day, Brookdale is now positioned to take a more offensive posture as it relates to the deployment of capital, given the positive industry environment and Brookdale's significantly improved financial health. Looking at uses of capital, our North Star is to make acquisitions and to invest in projects that bring our shareholders high returns and that correspond to our portfolio strategy, which is to stay within our existing product types and our geographic market footprint. I'll provide more color on both our community and reinvestment as well as recent acquisition activity. During 2026, we are increasing reinvestment in our existing communities through a program we call First Impressions. First Impression projects are significant, targeted CapEx investments with a focus on upgrades to community common spaces, including improved flooring, updated lighting, new furniture, and repositioning various areas to be more active and engaging to residents. These upgrades improve visitors' first impressions, hence the name, of our communities and help drive occupancy through higher tour-to-move-in conversion ratios. These investments also support higher in-place rate increases and decrease future repairs and maintenance expenses. Overall, we see high ROI paybacks on such projects, and we have described three recent representative community reinvestment examples in our investor deck on slide 19. We expect our first impressions reinvestment to become even more prominent starting in the third quarter of this year, and investment in the second half of 2026 will be roughly double our first half pace. Overall for 2026, we anticipate completing around 30 first impression projects with budgets of greater than $250,000. The average spend on our significant first impression projects is roughly $500,000 to $600,000. Aligned with our capital deployment and portfolio strategy, we're excited to have recently announced two separate acquisitions. The first is the acquisition of the Brookdale Galleria Community in Houston for $23.4 million, which closed at the end of June. We're thrilled about this opportunity. We previously managed the Galleria Community under a long-term management contract, so we know the property and its occupancy dynamics exceptionally well. The community is in the affluent Galleria Submarket of Houston, adjacent to High End Shopping, so it is well located in a market where Brookdale has meaningful density. At 244 units, it's a large community, and we were able to purchase it substantially below replacement cost. From an operational improvement perspective, the Galleria opportunity is compelling to us. The current occupancy at the Galleria community is lower than our Brookdale average. We will be investing additional capital in addition to significant renovations that have recently occurred to reposition the community. Most importantly, we have already closed the skilled nursing operations at the community and expect to replace those units with additional community amenities and other configuration improvements designed to take advantage of market demand and drive improved economic performance. Now, as the owner rather than the manager, operating income expansion will accrue to the benefit of Brookdale and our shareholders. The second is the planned acquisition of 17 communities that we currently lease in a triple net arrangement. These 17 communities are in markets where we have meaningful operating density, and we know these markets and buildings well. Thank you for joining us. and bring us down to four remaining lease portfolios which, in their own right, are producing positive cash flow. Importantly, this transaction is expected to increase our 2027 adjusted EBITDA and cash flow. We plan to fund the acquisition with a mix of non-recourse mortgage financing and cash on hand. Both of these acquisitions further bolster the fact that we are the third largest owner of senior living real estate, after only Welltower and Ventas. As I shared during our investor day, we are an operating company, but we are a company that is built upon a foundation of highly specialized real estate, and this real estate is becoming increasingly scarce with each passing quarter. Pulling all these points together and following our in-line second quarter, we reaffirm our 2026 annual guidance of 8% to 9% REF PAR growth and adjusted EBITDA range of $502 to $516 million. Thank you for watching. Thank you for joining us.

Thanks, Nick. This morning I'll review four key areas. Brookdale's second quarter financial performance, recent improvements to our balance sheet, progress we're making on our ongoing portfolio transition, and our outlook for the remainder of 2026. Starting with our financial performance, our second quarter results were consistent with the progression we outlined last quarter. Let me highlight a few key points. Second quarter adjusted EBITDA was $122.1 million, up 4.3% year-over-year and in line with our suggested pacing of a low-to-mid single-digit increase and slightly ahead of consensus. REV PAR for the quarter increased 8.2% over the prior year, also in line with the pacing we outlined. Thank you for joining us. Thank you for joining us today. through our realignment and our continued focus on maintaining an appropriate expense structure to align with our business while continuing to provide high-quality care and service to our residents. We expect those savings, which will begin to be realized in the third quarter, to fully offset the impact of that slightly lower occupancy on our adjusted EBITDA target. As a result, we remain on track to deliver our 2026 adjusted EBITDA guidance of $502 to $516 million. For the second quarter, Brookdale resident fees were $708 million, a decline of 8.7% from the second quarter of last year. The primary drivers of the year-over-year revenue decline were a 15.7% reduction in consolidated average units driven by portfolio optimization activities, partially offset by an 8.2% rev par increase. On a same community basis, rev par increased 5.5%. Revenue per occupied unit, or rev por, remained strong and continued to support revenue growth during the quarter. During the second quarter, RevPoor improved 5.2% versus last year on a consolidated basis and 4.1% on a same community basis. While RevPoor typically moderates over the course of the year, we expect year-over-year RevPoor performance to become increasingly favorable over the back half of the year as we annualize the concessions embedded in last year's results. Overall, we expect year-over-year REVPAR growth to accelerate during the second half of the year, driven by improving occupancy, healthy REVPOR, and the favorable mixed impact of the dispositions. As a reminder, we guided to 8-9% consolidated REVPAR growth for 2026. through the first half of the year, we've performed within that range and we continue to expect to deliver on this component of our guidance. Now let's turn to expenses. On a consolidated basis, second quarter expense per occupied unit, or ex-poor, increased 3% over the second quarter of 2025, resulting in a positive rev-poor over ex-poor spread of 220 basis points. On a same community basis, and other members of the community. on a same community basis, community labor expense performed favorably as our labor as a percentage of revenue improved 90 basis points year over year. While this is a strong improvement, we continue to see meaningful opportunity on the expense side. We continue to evaluate and make sure our expenses are appropriately aligned with our occupancy levels, and we're already expecting a positive impact from the efficiency actions I mentioned earlier. For the third and fourth quarters of the year, we expect labor as a percentage of senior housing revenue to slightly improve sequentially despite those quarters containing an additional day and holiday. Our same community other facility operating expenses were elevated during the second quarter. There is always a level of variability in our other expenses, and we expect other facility operating expenses to follow normal seasonal trends. General and administrative expense, excluding non-cash stock-based compensation expense and transaction, legal, and organizational restructuring costs, declined 6% year over year to $38.9 million for the second quarter. The second quarter results reflect that we scaled our G&A cost base to reflect both disposition activity and the reduction of our managed community portfolio. We continued to expect approximately $157 million for the full year G&A costs. Cash facility operating lease payments during the second quarter of 2026 were $44.8 million, down $12.7 million year-over-year, primarily due to the Ventas lease dispositions, which occurred in the second half of the year, coupled with a contractual step-up on lease payments on the retained Ventas leases. Turning to our balance sheet. Our balance sheet strengthened during the quarter. Our annualized leverage improved to 8.4 times from 8.8 times at the end of the prior quarter. Total liquidity increased to $566 million as of June 30, 2026, up from $369 million at the end of last quarter, reflecting both the expansion of our revolving credit facility and higher cash balances resulting from positive operating cash flow and disposition proceeds. During June, we completed two financing transactions which addressed a portion of our 2027 debt maturities while also expanding and extending our revolving credit facility. As a result of these transactions, we repaid $200 million of outstanding mortgage debt with $188 million in new non-recourse first lien mortgages. These new loans are interest-only, for five years and mature in 2036. Additionally, we expanded our revolving credit agreement to $200 million, an increase of up to $100 million from our prior line. The facility now extends through April 2029 and includes two one-year extension options. More recently, in August, we announced the refinancing of all of our remaining 2027 mortgage maturities. Specifically, we obtained $249 million of fixed-rate financing and used the proceeds to repay $244 million of mortgage debt scheduled to mature in 2027. These transactions demonstrate our continued, proactive approach to managing the balance sheet well ahead of upcoming maturities. We appreciate our key lending partners for their support and their confidence in Brookdale's business outlook. We now have no remaining debt maturities until 2028. Adjusted free cash flow for the second quarter was a positive $38 million, reflecting the growth in adjusted EBITDA, lower use of cash for working capital, and a timing-related reduction in non-development capital expenditures. Now turning to the progress we're making on our ongoing portfolio optimization. We continue to execute on our capital recycling strategy, which includes the disposition of non-strategic or underperforming owned and leased communities. Earlier this year, we said that we expect to sell 29 communities comprising 2,364 units during 2026. Through June 30th, we sold 13 owned communities Comprising 1,108 units for proceeds of $147 million net of transaction costs And we also exited two leased communities with 152 units We've continued to close transactions since the end of the quarter And as of August 10th, we have closed the sale of an additional three communities With 228 units for net proceeds of $2.5 million dollars Today, 13 of the planned 29 communities identified for disposition remain. We expect most of those to close before the next earnings call. In total, we now expect proceeds for 2026 community dispositions, including completed transactions, to generate net proceeds of approximately $190 million. As Nick mentioned, we also completed one acquisition at the end of the second quarter and announced a second acquisition expected to close in the fourth quarter. At the end of June, we acquired the 244-unit Brookdale Galleria in Houston, a community we previously managed for approximately $23 million. We close the Galleria transaction using our line of credit and cash on hand. Last week, we announced the acquisition of a 17 community portfolio, which we currently lease, comprising 735 units for a purchase price of approximately $157 million. We expect to close this second acquisition using a mix of non-recourse mortgage financing and cash on hand. We're excited about both of these acquisitions of high-quality communities. Both were purchased below replacement costs and are expected to improve our intermediate and long-term financial results. Now let's turn to our outlook for the remainder of 2026. We remain on track to deliver our 2026 guidance of 8-9% REVPAR growth and $502-516 million of 2026 adjusted EBITDA. Here's the path to delivering our guidance for the remainder of 2026. And note that the highlights of this are also included on slide 12 of our second quarter investor presentation, which we posted to our IR website yesterday. Average units, which were 42,820 in the second quarter, are expected to decline to approximately 42,200 in the third quarter and 41,500 in the fourth quarter. The decline reflects the tail end of our previously described capital recycling program and the impact of our Galleria acquisition. Remember, the acquisition of the leased assets will not change the expected unit average as those units were already included in the expected average unit count. Consolidated occupancy should be approximately 83% for the full year. We expect stronger growth in the third quarter, including the 30 basis points of sequential same community occupancy improvement achieved in July, followed by continued expansion in the fourth quarter. Both quarters should show stronger sequential expansion than what we reported earlier in the year. Rev Poor or Rate is expected to show greater year-over-year growth in the third and fourth quarters than in the first half of the year as a result of dispositions as well as the comparison against discounting in the prior year. As a result of improved occupancy and rate, The sequential rev-par growth for the second half of the year is expected to mark an accelerating trend from the first half of the year. Labor costs, as I mentioned earlier in my remarks, should slightly decline as a percentage of revenue in the third quarter and further again in the fourth quarter. We project $157 million in annual G&A expense. We now expect cash lease expense of slightly under $180 million for the year as we realize the initial benefit of the 17 community portfolio acquisition we announced earlier this month. Summing it up, we expect adjusted EBITDA growth to accelerate into the third and fourth quarters of this year. Specifically, we expect third quarter year-over-year adjusted EBITDA growth to be in the low double-digit range. For fourth quarter, we anticipate adjusted EBITDA growth to come in above our mid-teens target growth range. In closing, while we delivered on our overall expectations for the second quarter, occupancy growth hasn't moved as quickly as we initially expected. We've taken decisive action to further drive growth in the back half of the year and to identify additional cost efficiencies. We continue to expect to deliver on our 2026 guidance. We're confident in our strategy, in our team's ability to execute, and in our ability to continue creating long term shareholder value. Operator, we will now open the call for questions.

We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from Ben Hendrix with RBC Capital Markets. Please go ahead.

Great. Thank you very much. I was wondering if we could talk a little bit more about the guidance to the second half, the, you know, the REVPAR guidance. It seems like, you know, you were expecting about 100 basis points better in 3Q and 4Q. Now we're kind of pushing that inflection a little bit more into 4Q. Maybe you can kind of talk about some of the dynamics there. It seems like you put through some really good REVPAR growth, but maybe the move-ins were a little bit still kind of down 5%. Maybe we can talk about kind of receptivity to those rate updates and how that's impacting your RevPAR outlook. Thanks.

Thanks, Ben. This is Dawn. Appreciate the question. Yes, our RevPAR growth, what we expect for the third quarter, we did tap that down a little bit in that we expect that RevPAR growth to be similar to our 2Q growth that we reported. And that's driven by the slower occupancy that we talked about, both Nick and I, in our prepared remarks. and then the disposition timing. So we had some delay in the dispositions where we would expect to get that accretion. We're expecting to get that accretion now in the fourth quarter. But just to take a step back, reminding you, our rev par growth of 8.2% year over year is really something that we're proud of. This is the highest in the last two years. And so just taking a step back and looking at that. When you think about the fourth quarter, our REVPAR growth there is going to get the benefit from the full occupancy from our summer selling season and then that disposition timing, we would expect to get that accretion there where we expect an acceleration in the growth.

And what I'll also add, Ben, part of the focus as a team has been truly on REVPAR and Tackling both sides of that equation, both the occupancy and the rate side of it. So this year we're taking a far more disciplined, far more deliberate approach to our in-place rate increase for sure, but even our market rate increases as new move-ins come out or new move-ins come into our communities and they replace a move-out where naturally we're just really driving to that rev par number. So as you look at occupancy, as you look at rate, the overall kind of push on REVPAR, and I think the points that Dawn made on the acceleration for Q3 and Q4 part of it is also coming from rate in addition to the occupancy growth.

Okay, great. So we should expect REVPOR to continue to tick up as we get through the back half of the year then.

That's right, Ben. If you remember what we talked about at the beginning of the year in our REVPOR, is you see the benefit of the rate increase in the first quarter. Typically, we see that rev pour stepping down every sequential quarter from acuity and discounting. What we said at the beginning of the year and remains the same is that that rev pour, we expect our rev pour to remain firm in the back half of the year. So we'll expect that little bit of a step up in the third quarter and then it'll remain firm. When I say remain firm sequentially, we don't expect that step down.

which is atypical for our company in the industry really. So it's a little bit of a change this year based on the dispositions and based on this pricing strategy that we've implemented.

Great. Thanks a lot, guys.

Your next question comes from Rob Simone with Compass Point. Please go ahead.

Hey, guys. Good morning. Thanks a lot for taking the question. a high level or big picture question for you. So, I mean, obviously the company has changed pretty dramatically over the last several years. And I wouldn't use the word tumultuous, but like there's obviously been lots of changes at the higher level management ranks over the past year. So I was just wondering if you could maybe elaborate on what changes you guys made at kind of like the local level and regional operational level. What has been done behind the scenes to kind of get you guys where you need to be and give you the confidence that the next year or so you'll gradually add on to occupancy?

Yeah, Rob, love the question and really appreciate it because it is sort of defined who we are and who we will be for the next year is exactly the kind of the question you're alluding to. And the first point I'll make is, The changes that we have made, all very appropriate, a bit disruptive, maybe even tumultuous, that's the word you used. but the cool thing is the table is now set and the pace of change is more or less behind us and now we're looking forward to the new team, the new structure, the new organizational effectiveness that we have going forward. So that's kind of the first point. As far as the specifics of the changes that have happened, it really starts with our communities. So I'll start at the bottom of the org and then quickly move on the way up. But at the core of it, we have what we call our key three and many of our peers use a similar term. It's basically our operations leader, executive director, Our sales leader and our clinical leader. We have truly bolstered what that looks like within communities, the reporting relationships, the authority they have, the empowerment they have, and the accountability that they have. In fact, to that point, our key three turnover is the lowest it has been since COVID. The number of communities that we have ED openings is the lowest it has been since COVID. So some real performance improvement around the engagement of our leaders across our 500 plus communities. and that's a big part of what I have brought to the table as a new CEO and what the management team has really leaned into is the leadership within the community. Now stepping up one level right above that, we call it a district is what we call it in our company. We have replicated and that was a meaningful change in the middle of Q1. We have replicated the same organizational model at the district level and it was not that way. So our sales operations and clinical leaders all report up through our district director of operations, which again, in some ways, some people would say that's not that meaningful of a change. I'll tell you, it's a very meaningful change because then it creates clear accountability, clear empowerment, clear authority through the district into the community. So instead of having two, three, four leaders, district leaders reaching into a community and providing guidance and authority and all those things, There's now a single line of accountability, which goes right to the regional level where we did the exact same thing all the way to the COO. So practically what I'm describing is a single line from me as the CEO down through our executive ranks, the regional ranks, the district ranks into the community. And with that single line, you have a single line of empowerment, enablement. Oh, by the way, accountability and reporting that reaches into each of our communities. And another big part of the change, and this happened late last year, and is that we now are structured at six regions of about 100 communities or so, 90 communities or so, where we're in effect operating like a regional company of six or basically operating at six companies, but so with the capabilities, the funding that a company of our size has.

Got it. Okay. Yeah, no, that's really helpful. and interesting as well. It's good color for folks. Maybe just one unrelated question and it's kind of been hit on, but to the extent you can, you know, what gives you the confidence or what points give you the confidence that besides the price that you've already taken and your view into occupancy like thus far into August that you're actually going to be able to accelerate RevPAR and and maintain or hit your guides as the year goes on. Just any like anecdotal data points or qualitative things that could kind of give people more comfort might be helpful.

Rob, this is Dawn. I'll start and I think when we think about the sequencing of our quarterly adjusted EBITDA, you know, really the July occupancy coming into our summer selling season gives us confidence. The move-ins we saw kind of coming out of the second quarter that July occupancy growth is really something that gives us confidence coming into August and September. Now, as you know, our third quarter has an additional day, an additional holiday. We expect kind of that occupancy growth to offset that natural step up in our expense base. But what we said on our prepared remarks was the labor efficiencies that we saw with the structuring that Nick was just talking about, The labor efficiencies and the expense savings with that lower occupancy than expected growth in the second quarter, we expect our labor and have specific actions around making sure that that labor savings is happening in our expense base. In my prepared remarks, I had mentioned that we expect our labor as a percentage of our revenue to slightly improve in the third and the fourth quarter. that's atypical of our seasonality because of the additional day and holiday in the third and the fourth quarter. So those expense savings we would expect to see coming through both in the third and the fourth quarter. And so that gives us the confidence with the step up in the adjusted EBITDA that we're talking about.

Got it. Okay. Thanks, guys. Appreciate it. Be well. Thanks, Rob.

Your next question comes from Brian Tanquillit with Jefferies. Please go ahead.

Good morning. This is Megan Holton for Brian Tanquillit. I appreciate the color you guys gave on the two acquisitions, but was hoping you can elaborate a little bit more on maybe the strategic rationale of these communities that you're now going to own in any financial or operational metrics.

Yeah, I appreciate the question, Megan. I'll step in first, then Chad will probably provide a few more details. And I guess the first point is the overall strategy that we've articulated during the investor day and even reiterated throughout the earnings calls that we've had since then. And that's this idea that we are, for the first time in many years, kind of more in an offensive posture. We have the wherewithal, we have the capital, we have the free cash flow. We have leases that are generating free cash flow like we have the freedom now to make decisions like this and that's exactly what we are doing and specifically we're looking for very targeted deliberate acquisition so it's not an opportunistic we're not looking for portfolios we're not looking for broad swaths in fact to be even more specific we're currently in 41 states zero desires to be in 42 states we're in roughly 125 markets zero to desire to be in 126 markets that that is a growth strategy some companies have That's not our growth strategy. Our growth strategy around acquisitions is to acquire in markets that we already have a meaningful presence where we're looking to create even more density, even more focus, and really leverage the strength of a company of our scale. And that's exactly what these two acquisitions have done. So Gallery in Houston, very affluent, great market. We know the building well. And now as the owner, as opposed to the manager, we have some real freedom. And then similarly with our lease acquisitions. Chad, anything else to add?

Sure. To start with Galleria, we were very excited to be able to execute that acquisition at an incredible per unit purchase price that's substantially below replacement value. Nick mentioned that it's in an affluent area. We view that real estate as effectively irreplaceable. It's located next door to the Galleria Mall, a great shopping area there in Houston, so very excited about that. From an underwriting standpoint, we know the asset, we know its potential. and we had a unique vantage point as the existing manager of the property. We view this as a very low risk and very high reward transaction. We purchased the community for a purchase price of just over $23 million, which was less than $100,000 per unit. Importantly, Brookdale Galleria had already benefited from tens of millions of dollars of capital expenditures over the last several years that had been funded by the prior owner. Much of that was related to updating major systems and refreshing the aesthetics of the community. Frankly, the community looks great, as you can see in pictures available on our website, but we have plans to further improve it with relatively limited additional capital investment. As the owner of the community, we now have much more flexibility to implement changes we believe will help drive value creation for our shareholders. We didn't have this flexibility as the manager of a community. For example, we've already shut down the underperforming and negative NOI skilled nursing operations at the community, and we have plans to reposition the community as a high-end, hospitality-focused, multi-product line senior living community. Through modest development capital expenditure investments, we plan to add additional amenities, along with additional changes designed to take advantage of demand dynamics in the Houston market. The changes we have implemented since we closed the transaction just over a month ago have already resulted in improved NOI and we see much more potential in the months and years ahead. We're confident that the acquisition will provide intermediate term adjusted EBITDA and cash flow accretion that will drive value creation for our shareholders. Now briefly on the leased acquisition, we were happy to reach a win-win transaction with our landlord. to effectuate the purchase of that 17 community portfolio. Effectively, we were able to accelerate our exercise of a purchase option on the portfolio, but we did it at an attractive price, again, with minimal risk and high upside given that we were already the operator of the communities. As Nick mentioned, we know these buildings, we know these markets, we're confident that we can continue to drive occupancy and NOI growth here. Similar to other lease acquisition transactions we've completed over the last few years, this allows our shareholders to capture the full shop equivalent economics of the portfolio and reduce rent exposure. Dawn mentioned earlier this transaction improves our 2027 adjusted EBITDA by about $11 million, but it also will meaningfully improve our annual cash flow as we're replacing high-cost lease financing with lower-cost mortgage debt.

Okay, thanks for the caller. And then just touching base on the new Chief Sales Officer hire, what are some of the actions she's putting in place to drive occupancy?

Yeah, Megan, really appreciate that question. So again, as I shared, very excited to have Margaret join the team. So if you look at our July occupancy, in fact, and again, I hate even kind of going to the second order, but take a look at the month end versus the weighted average, which is indicative of what the following months will look like. Those numbers are not accidental. Obviously, there's a supply demand component that underpins it. That is the context. But Margaret has come on board. and very quickly, she joined us early about a month and a half ago in June. There's some real activity. There was a very specific campaign, specific initiative that we launched in the month of July that are more activity-based than outcome-based. So the previous approach had been more around, you know, looking at outcomes, which are very important. but the reality is we're asking 500 plus community sales professionals in those communities to do specific actions with specific accountability and that's exactly what Margaret brought immediately and again in July our numbers reflect that. So very excited by what this means. If anything has brought a new energy, a new pep, a new strength in how we approach Our sales process and it really has kind of the organizational structure of ops, sales and clinical truly working together every single layer of the organization has been a pretty meaningful change. And again, it's showing up as an early indicator in our July numbers and excited by what August, September, October will bring as we continue selling in the summer season.

Your next question comes from Raj Kumar with Stevens. Please go ahead.

Hey, good morning. Maybe just one on kind of thinking about the operating leverage of the business, specifically on the labor component. One would love to, you know, get any updated thoughts on kind of hiring trends that you saw in the second quarter. And then secondly, as you kind of think about the opportunity ahead across the different portfolio bands, it would be kind of helpful to illustrate kind of you know the operating leverage magnitude especially kind of just for example kind of considering you know maybe a 90 occupancy is you know well equipped to you know service a 95 plus occupancy so kind of that type of leverage dynamic just would be kind of curious on any color commentary there yeah Raj so from an overall hiring perspective um

It still feels very much like an employer's type job market. We have more applicants per open rec than we've ever had for sure since COVID. Oh, by the way, it's underpinned by the lowest turnover even since before COVID. So earlier I referenced the lowest turnover of our key three leaders, best since COVID. The overall turnover as a company is even better even than before COVID. So I will tell you from an employer perspective, We feel like we are an employer of choice. We're able to hire the right people who have a real passion for senior living and service, and we're able to keep them in a much better pace than we've ever had specifically through 2023, 2024, but even as recently as last year. So this year is feeling really, really good, and we're able to manage are our labor, our talent more effectively than we've ever had. So that feels good from an overall perspective. As far as the occupancy bands, and I'm glad you asked the question. So in our investor deck, and for those of us who've been with a while, I've seen this slide for a while, on slide 18, we clearly show that as occupancy goes up, the EBITDA, the NOI that's available per unit goes up meaningfully. So as an example, in the under 70% occupancy band, Thank you for joining us. Thank you very much. The end of Q2, we just reported 85 total communities that are below 70% occupancy. A year ago, in 2025, we had 129. So a meaningful improvement in those numbers. And to kind of distill that a bit more, within that 85, nine of them are on the disposition list, and that should be no surprise. We are disposing the lower performing communities. So very naturally, that number will decrease as we effectuate those dispositions. Thank you for joining us today. really it's around it's less than half that are I'll say in a more of a consistent nature and we have launched the SWAT team in fact in some ways relaunched the SWAT team under our SVP of Strategic Operations Clark Jones and we'll be tackling those that have been more consistently in that under 70 to really make some meaningful changes in that small cohort that are in that position.

Got it. And then maybe just to follow up, if I kind of think about the free cash flow trajectory for the second half, I know you called out some kind of incremental investments or accelerated investments kind of related to just facility uplifts and whatnot. So I guess maybe any framing on the back half here for free cash flow would be helpful. Thank you.

Yes, if you look at our second quarter, we're $38 million of adjusted free cash flow. We said that we expect to be significantly adjusted free cash flow positive for the year. Last year, we had $23 million of adjusted free cash flow and our expectation is that we would be much higher than that. And so as we think about this, the second half of the year, You know, we expect that during the quarters, we wouldn't give specific guidance quarter by quarter. You have some level of variability with your working capital. We expect to spend about $175 to $195 million of CapEx and on top of that still be significantly adjusted free cash flow positives.

Your next question comes from Joanna Gajuk with Bank of America. Please go ahead.

Good morning. Thanks so much for taking the questions. So maybe coming back to discussion around the guidance and I appreciate the comments around occupancy a little bit less and, you know, some of the cost efficiencies, but also the other dynamic you mentioned is the delay or I guess, you know, delay of these dispositions, right? So you're holding these underperforming assets a little bit longer on your book so can you help us understand the dynamic how big of a drag is you know the fact that these assets are delayed and also you know is this being also offset by call that three million dollars or so from the benefit in Q4 from the purchase of the 17 leased assets?

Johanna, that's a very good question. I appreciate the question and the clarification. That's exactly how we're thinking about the acquisition of the leased assets. We will start to benefit from those leased assets changing from a lease into the own in our cash lease payments, which is why we adjusted our language around the full year guide on those cash lease payments. How we're thinking about the drag on the dispositions is that lease payment or that buyout of the lease portfolio, that benefit should be offsetting that drag.

Okay, that's helpful. If I may, last one. On the move-ins, the slide there that shows, you know, the move-ins declining year over year, I guess for, you know, Sometimes now, so can you kind of walk us through, like, why is that happening?

Yeah, I'll take the first pass at that, Joanna, and then... and Dawn may have some more because they were here in that time period. So you've got to realize move and pace and pricing go hand in hand. Last year, we made some very deliberate and I'll argue potentially appropriate at the time discounting to really get things moving in the June, July time period. And this year, we're taking a very different approach, both with our in-place rate increase much more meaningful this year as compared to last year, and then a much more deliberate, disciplined, move-in pricing approach. So at the end of the day, as a team, we are focused on rev par and obviously the constituent components of it, but we can't lose sight of our rev par, which again, I'll reiterate, 8.2% with an 8% to 9% guide. So we are really threading the needle between balancing rate and balancing move-in pace. And if anything, it's a bit of a two-speed world. In our 90% plus occupied communities, and we're having more and more of those, we can drive rate more meaningfully. And then in the lower occupied communities, and I briefly discussed the 70% and less in the previous question, we will do discounting. So we're really trying to balance those two components to drive the overall REF PAR. So as you look at our move-in pace and the comparison, I think it's on slide nine, it's probably the one you're referencing, there's some real pricing components to that math.

I think I'd also look at the recent monthly, the recent results that we've seen. Nick mentioned earlier some of the changes we made with bringing a new chief sales officer, et cetera. And so some of those changes are starting to take hold. And you can see that with the July results in particular. And so in my mind, a lot of the work that has been done this year has set the stage for a successful summer selling season as we move forward.

And if I may, last one, sorry, on the summer season comment there, so appreciate you gave us the July data point there, because honestly, the 30 basis points, I know, you know, it's a solid number, but I guess when we think about last year, it was, you know, the growth sequential in July versus June was much stronger. So I understand, you know, because you just answered a question around the, you know, what was happening, it was sort of like, where do you stand right now? in terms of your selling season and incremental color you might have already on the early, I guess, activity in August. Thank you.

Yeah. Johanna, take a look at the month end and compare it to the weighted average for the month. And again, I hate going to the second order and third order type math, but we do provide it. We do publicly disclose it. So if you look at that gap this year and compare it to previous years, you can see it's fairly healthy, and that's a fairly good indicator of what the follow-on month looks like. And again, I'm going to go back to all the changes we have made in our sales organization, our structure, our leadership, and that's not accidental that that number is there. And by the way, again, it's underpinned by a real contextual thing that's happening in the senior living industry, and we're taking full advantage of that. So we feel really good about what August, September will look like just based on all the indicators that we have available and what you can see yourself with that July number.

Great, thank you.

Thanks.

Your next question comes from Andrew Moak with Barclays. Please go ahead.

Hi, good morning. It's still not clear to me exactly what's driving the occupancy shortfall in the quarter, and you noted some of the issues with the year-over-year comparisons shown in slide 9. So I guess very simply, was the shortfall against expectations more of a move-in issue or a move-out issue? and we'd love to just hear more color on the drivers of the variants. Thanks.

Yeah, I'll chime in first. And again, Dawn and Chad may fill in some gaps. And it's a great question, Andrew. So obviously, Occupancy is derived by both move-in and move-out metrics. So it's both sides of the coin. Move-outs, we have controlled and uncontrolled. Uncontrolled being more, obviously, things that we don't necessarily control directly based on the status of the resident. I will tell you, and again, we don't specifically tease this out, especially on the month-to-month because then it just gets, you know, now we're talking third and fourth order type of insight. that can get a little muddy. But we've been actually very happy with our move-in pace. The move-out has vacillated, but it also does. There's a lot of cyclicality. And again, this is an industry-wide thing where you will have several months of good move-outs only for a month or two of poor move-outs. Again, most of them usually on the uncontrolled side, residents that need a higher skill level, residents that just are no longer appropriate for senior living. And that's been a little bit of our occupancy story where our move-in pace actually very strong. In fact, with some of our results, we've actually articulated that it's kind of a record level highest in the month type numbers through the summer months. But then you counterbalance that with move outs that did not maybe go as well as we had hoped, but out of our control. I will tell you all that has seemed to stabilize. Again, it's one month, July. By no means is that a trend other than to say that the move out pace is sometimes quite cyclical.

Yeah, and I would just add that... I would just add that, you know, as Nick and Chad both just alluded to, is that the new sales leader not having a sales leader in since middle of the first quarter, bringing that sales leader in, you know, and Margaret's been great, a different energy, very actionable, where she's very interactive, strategic on driving sales within the organization at the community level. You can feel it in the company. You can feel it in the organization. And that certainly has made a difference. And I think that that void also contributed partially to what we thought was just a little bit of volatility in the occupancy from a month-to-month basis.

Great. And maybe just a follow-up on the expense side. Same community, other facility operating expenses. I think we're up high single digits in the quarter. Can you provide more color on what drove that pressure specifically and elaborate on The initiatives you're pursuing on labor productivity to help offset the occupancy pressure? Thanks.

Sure. It's a great question. I'll start with the non-labor expense. We did see a little bit more in a way of headwinds around our repairs and maintenance expense, some of our insurance expense, and some of our bad debt expense. We talk about that in our public documents, in the press release, in the queue. What I would say there is we expect our non-labor expense to follow the normal seasonality. There's always a level of variability on that expense line item. But the expectation for the year is that it would follow our normal seasonal trends. On the labor side, in my prepared remarks, we said that our labor would slightly improve as a percentage of revenue in the third and the fourth quarter. That's not traditional that we have an extra day in holiday, which is a labor headwind when you think about sequential second quarter to third quarter. But what we would say there is we've looked at under the new operating structure, looked at our labor productivity, looked at the labor at the community level and taken specific actions around kind of what that expectation is given the variability, the variable labor as it relates to our occupancy levels. And, you know, we've been very specific about the actions that we've been looking at there in the back half of the year and expect that those expense savings to come through, which is why we guided to our revenue, our labor, our consolidated labor as a percentage of revenue to slightly improve in the back half of the year.

Great. Thank you. Thanks, Andrew.

There are no further questions at this time. I will now turn the call back to CEO Nick Stengle for closing remarks.

Excellent. Thank you, Rebecca. I'll just close it out the same way I started it. First, by thanking our associates every day. They care for our residents. They care for each other. And at the end of the day, that's fundamentally what we provide against the backdrop of the real estate that we own that we've talked about so much. I'd like to thank our family members and our residents who put their trust in us. I'd like to thank our shareholders for their continued trust in this management team and their continued interest in Brookdale. With that, I recommend we shut down the call. Thanks, Rebecca.

This concludes today's call. Thank you for attending. You may now disconnect.