Brookdale Senior Living Inc. (NYSE:BKD) Q2 2020 Earnings Conference Call - Final Transcript

Aug 11, 2020 • 09:00 am ET

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Brookdale Senior Living Inc. (NYSE:BKD) Q2 2020 Earnings Conference Call - Final Transcript

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Q & A
Operator
Operator

[Operator Instructions] Your first question comes from the line of Brian Tanquilut. You may now ask a question.

Analyst
Brian Tanquilut

Hey, good morning guys. Thank you for all the details you have provided today. So I guess my first question, Cindy, with the Ventas deal you highlighted at the beginning of your opening remarks, how are you thinking about the economics that you gave up to get the rent concessions? I mean, you gave up warrants into Brookdale and some upfront cash payments. So, just wanting to get the -- your perspective on making that decision to make that move to restructure the lease today in the way that it was restructured.

Executive
Lucinda M. Baier

Good morning, Brian, thank you for the question. We're very excited about the win-win transaction that we announced with Ventas and we're grateful for the Ventas' team working with us on this. There's no question that this transaction improves our financial position. The rent reductions that we received are significant and permanent and they total more than $500 million of rent reductions.

Importantly, we eliminated the financial covenants and removed burdensome longer-term change in control provisions, including extending an above-market lease, requiring additional capex funding and security deposits, we do still have a $25 million change of control.

Now given our liquidity position, we felt comfortable with providing an upfront cash payment in exchange for receiving a significantly longer-term cash benefit. Now, if you know, the transaction has roughly a one-year cash payback. In addition, we sold five assets at a very attractive 6.5% cap rate with a G&A allocation and we continue to expect to manage the properties. The new debt that we assumed has a similar interest rate and yet it can now be repaid at par. And we think that the warrants are a nice alignment of interest with Ventas and Brookdale.

Analyst
Brian Tanquilut

Got you. That makes sense. Then I guess turning to just the operational update that you gave. So obviously, Texas and Florida have become hotspots. But how are you navigating that in terms of the closures that are actually happening operationally at the facility level -- or I'm sorry the community level? Is that more of market-by-market or is that facility-by-facility? And then how quickly are you able to ramp that up? I'm just trying to get a gauge of what the recovery is going to look like as we get to August and September and the back half of the year.

Executive
Lucinda M. Baier

Yeah. Brian, it's a great question. There's no question that COVID-19 has created an unprecedented public health emergency. And our top priority has always been the health and well-being of our residents, our patients, and our associates. We're a learning organization and we're very nimble. I think that you'll see that our response is driven by a national framework with support and infrastructure that only Brookdale can provide, but the execution is at a community level.

And so, if you look at Page 9 of the investor deck, we've done a really nice job