Brookdale Senior Living Inc. Q2 FY2023 Earnings Call

Hello, everyone and welcome to Brookdale Senior Living's Second Quarter Earnings Conference Call. My name is Bruno and I'll be operating your call today. I will now hand over to your host, Jessica Hazel, Vice President of Investor Relations. Please go ahead.

Thank you and good morning. I'd like to welcome you to the second quarter 2023 earnings call for Brookdale Senior Living. Joining us today are Cindy Baier, our President and Chief Executive Officer, and Dawn Kussow, our Executive Vice President and Chief Financial Officer. All statements today that are not historical facts may be deemed to be forward-looking statements within the meaning of the Federal Securities Laws. 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 factors that could cause actual results to differ are detailed in the earnings release we issued yesterday, along with reports we file with the SEC, including risk factors in our Annual Report on Form 10-K and quarterly reports on Form 10-Q. I direct you to the release for the full Safe Harbor statement. Please note that during this call, we will present non-GAAP financial measures. For reconciliations of each non-GAAP measure from the most comparable GAAP measure, I direct you to the release and supplemental information, which may be found at brookdaleinvestors.com and was furnished on an 8-K yesterday. Now, I will turn the call over to Cindy.

Thank you, Jessica. Good morning to all of our shareholders, analysts, and other participants. Welcome to our second quarter 2023 earnings call. I am pleased to announce that we have delivered remarkable year-over-year results for the first half of 2023, supported by our strategic priorities and ongoing initiatives, and are positioned for extraordinary future growth. For the second consecutive quarter, our adjusted EBITDA results exceeded our guidance. We are incredibly focused on the execution of our recovery strategy that prioritizes profitable and sustainable long-term growth through operational excellence of our key strategic priorities. As a reminder, our strategic priorities include getting every available room in service at the best profitable rate, attracting and retaining the best associates, and earning resident and family trust and satisfaction by providing valued, high-quality care and personalized service. Our positive momentum of top-line growth and expense management continued in the second quarter, which yielded a year-over-year adjusted EBITDA increase of 61% and an adjusted free cash flow improvement of 85%. This is even more impressive considering that as a result of the Omega and Welltower lease amendments, we had approximately $10 million of lease payments that impacted adjusted EBITDA this year but didn't affect last year due to changes in lease classification. There was no change in adjusted free cash flow as a result of the classification change. We believe this strong performance is being achieved through disciplined decision-making and by aligning the organization around the most critical actions that will drive meaningful results for years to come while delivering a steady and measured pace of immediate growth. Importantly, our RevPAR has now exceeded our pre-pandemic results for two consecutive quarters, and we have opportunities for continued growth as we increase our census. Demand for our product offerings is strong, and our teams have remained diligent in appropriately controlling expenses while providing high-quality care and personalized service. On the demand side, we have continued to see move-in activity that exceeded our pre-pandemic average by 7.5%, which supported our second quarter sequential occupancy growth. We have a healthy lead pipeline and anticipate growing demand over the coming quarters and years. While improving versus the first quarter, move-outs remained elevated in the second quarter. Even so, we outperformed normal pre-pandemic seasonality in the second quarter, and our ending occupancy for June exceeded our occupancy at the beginning of the year. Throughout the quarter, we delivered steady and sustainable occupancy increases that provide important recurring revenue streams and move us closer to achieving full recovery. At the same time, we further improved our operational and financial performance. On the expense side, we remained diligent in our efforts to create a high-quality resident experience through trusted and compassionate associates while being good stewards of the revenue we received from residents by managing expenses carefully. We are finally seeing our efforts to attract, engage, develop, and retain the best associates translate into improved turnover of our community associates. While we still have work to do, this is an important step forward. Lastly, regarding our third priority of providing high-quality care to our residents, I previously shared our plans to expand the Brookdale HealthPlus program to additional communities. At the end of the second quarter, we had nearly 50 Brookdale HealthPlus communities. I am proud to report that independent third parties have confirmed that residents in HealthPlus communities have fewer urgent care visits and hospitalizations compared to similar seniors residing in competitive senior living facilities or living independently. Importantly, urgent care visits were 78% lower and hospitalizations were 36% lower for Brookdale HealthPlus residents than for similar individuals living at home. These outcomes highlight the program's effectiveness in supporting improved resident health and well-being by providing proactive care coordination and preventive care measures. They also demonstrate the value that Brookdale's care provides in lowering healthcare costs for our residents. I am pleased with our year-to-date performance and believe we are on the right path to deliver against expectations in the third quarter. Our third quarter guidance reflects anticipated forward progress that moves us even closer towards achieving consistent and positive quarterly cash flow. In the third quarter, we are maintaining our targeted, community-centered approach to grow occupancy and to support margins consistent with the first quarter. Our sales, clinical, and operations leadership teams are working with key leaders at each community to ensure a strategic alignment and support our efforts to grow profitably at the community level. By tailoring strategies to individual communities and focusing on our largest opportunities, we can enhance operational performance, staff our shifts with full and part-time Brookdale associates rather than contract labor, and enhance overall resident and family satisfaction. There is so much potential from rebuilding our occupancy and achieving our operational initiatives, and I am incredibly proud of what our team of associates has accomplished to get us to this place. I know the decisions we are making and the actions we are taking are setting us up for long-term value creation. Before moving to our longer-term outlook, I wanted to provide an update on our lease with LTC Properties that is set to mature on December 31, 2023. In May, I spoke about the details regarding our notice of non-renewal for the 35-community lease. I'm pleased to share that we reached a mutually beneficial agreement with LTC to retain 10 communities under a new lease agreement. This 10-community lease is very beneficial to Brookdale because we now have the right to acquire all 10 assets under a favorable purchase option. Also, LTC has agreed to provide additional landlord-funded CapEx investments for these communities. Under the new lease terms, these communities would provide positive lease coverage. We value our relationship with LTC and appreciate the hard work from both teams to achieve this positive outcome. As I think beyond this year, I am confident we will remain on a path of occupancy growth over the coming years, capturing an organic growth opportunity that has more potential for positive momentum than at any point in the last decade. The macroeconomic dynamics coupled with Brookdale's key differentiators are contributing to our positive long-term outlook for Brookdale. I'll begin with muted inventory supply and strong demand fundamentals. Our exposure to the supply side of the equation is modest, with only 2% of our communities exposed to new construction within a 20-minute drive time. New construction remains at historic lows, driven by elevated interest rates, high labor and supply costs, and record inflation during 2021 and 2022. The silver lining from the pandemic and the follow-on inflation is that it has become increasingly difficult for developers to achieve financial feasibility for communities that would be able to compete successfully at our price points. The recent regional banking crisis and the resulting tighter lending criteria likely will keep new starts low for some time. Even if these macro factors rapidly improve, it can take up to three years to open a community after construction starts. On the other side of the equation, the demand for senior housing is set to surge, fueled by robust demographic tailwinds. The record forecasted growth in our target population will significantly accelerate demand for our products. More than one million new seniors are expected to enter the target market age cohort every year, resulting in an estimated 34 million individuals aged 75 and above in the year 2030. Older Americans are one of the fastest-growing demographics in the country. As a result, the demand drivers that support our expectations are not only solid but are accelerating. When you combine the low supply exposure with the strong and increasing demand, we can clearly see the positive industry fundamentals that will drive significant growth for our sector. With our competitive advantages, Brookdale is uniquely positioned to capitalize on these dynamics. Our diverse portfolio of communities with a higher mix of assisted living and memory care sets us apart from the industry, which is skewed towards lower acuity products. The senior population is increasingly comprised of elders with more chronic conditions like Alzheimer's. By 2030, the CDC expects 8.5 million Americans will be living with Alzheimer's disease. As seniors need more care, there are fewer adult children to support them. The caregiver ratio is projected to fall by an astounding 35% in the decade spanning from 2020 to 2030. This decline further deepens the need for valued, high-quality care and personalized services. Brookdale exists to help the aging population by providing these services. To this point, when a senior needs care, senior living is incredibly attractive from a cost perspective. Assisted living and memory care average a mere 25% of the cost of a home health aide. Without considering the normal expense of at-home living, we believe Brookdale's product offerings across independent living, assisted living, and memory care distinguish themselves as an affordable choice for the senior population. Last but certainly not least, we will leverage our scale and clinical expertise to deliver current and future residents enhanced quality care and services in a highly effective and value-added way. Through programs like Brookdale HealthPlus with measurable positive resident health outcomes, we are confident that Brookdale will differentiate itself further as the leader within the senior housing industry. At the same time, we have the opportunity to capitalize on the transition to value-based care by sharing in the value created from improved health outcomes. Given these differentiated company strengths, we anticipate the demand for our communities will increase considerably, which will drive significant future operating income growth and value creation for all of Brookdale's stakeholders. In summary, the opportunities for Brookdale's growth are significant, driven by robust supply and demand fundamentals, continued improvements in operational excellence, and a resilient business model. Brookdale, with our competitive advantages, is well positioned to capture this growth and provide an essential service to our aging population. I look forward to the journey ahead and I'm excited about the opportunities that lie before us. I'll now turn the call over to Dawn.

Thank you, Cindy. Good morning and thank you for being here today. We were pleased with our second quarter results, which included continued year-over-year gains in our key operating metrics, including occupancy, RevPAR, community operating margin, adjusted EBITDA, adjusted free cash flow, and ultimately, our liquidity position. We are proud of these results and believe that they are a testament to consistent execution of our strategic priorities and commitment to growth. Beginning with second quarter revenue, consolidated senior housing revenue grew 11% over the prior-year second quarter. This was driven by a 190-basis point increase in occupancy and an 8.8% increase in RevPAR. Both move-in and move-out volumes improved compared to the first quarter, contributing to sequentially favorable weighted average occupancy for the second quarter. As expected, we recovered the seasonal occupancy loss from the first quarter, grew occupancy every month within the quarter, and at June month-end, had returned to a level above the 2022 year-end. With 11.6% year-over-year growth, second quarter consolidated RevPAR was in line with our previously provided guidance range. Specific to our same community portfolio, RevPAR grew 11.9% year-over-year, driven by 210 basis points of occupancy growth and an 8.9% increase in RevPAR. Moving to expenses, our second quarter consolidated facility operating expense was approximately $531 million. We were pleased to maintain flat facility operating expense compared to the first quarter while sequentially growing our occupancy rate. Within same community facility operating expenses, labor expenses as a percent of revenue decreased 500 basis points compared to the prior-year second quarter while other facility operating expenses decreased more than 60 basis points. Same community premium labor expenses continued to decline in our second quarter, and our year-over-year reduction in contract labor was more than 80%. While labor is two-thirds of our expense base, we also saw improvements in utilities and food expenses, which supported our other facility operating expense favorability. Our leadership and team of associates remain diligently focused on appropriate expense control while ensuring that we continue to meet our residents' needs, provide high-quality care and services, and remain in compliance with applicable regulations. Same community operating margin was 25.7% when excluding the other operating income we recognized. This represents a remarkable 560 basis points of margin expansion over the prior-year second quarter. Second quarter general and administrative expense remained relatively flat to the first quarter at approximately $42 million. Cash operating lease payments for the second quarter were $62 million, which is consistent with our previously provided expectations and reflects the change in classification of $10 million related to previously communicated lease transactions. These results culminated in second quarter adjusted EBITDA of approximately $81 million, a more than $30 million increase over the prior-year second quarter despite the $10 million unfavorable impact of accounting changes in lease classifications related to our recent lease transactions. Importantly, second quarter adjusted EBITDA was above the top end of our previously provided guidance range. Compared to our expectations, second quarter adjusted EBITDA outperformance was driven primarily by better-than-anticipated expense management. Adjusted free cash flow was negative $7 million for the quarter, a $41 million improvement over the prior-year second quarter. This year-over-year favorability was largely driven by senior housing revenue and operating margin growth, as well as positive working capital. Second quarter capital expenditures were $65 million, relatively in line with the first quarter as expected. We continue to anticipate approximately $200 million of non-development CapEx in 2023, excluding expected reimbursable remediation costs. Year-to-date, we have incurred approximately $24 million in reimbursable remediation costs, of which we have been reimbursed approximately $9 million. We believe the remaining $15 million of reimbursement will occur in 2023 and currently expect our total reimbursable spend to be approximately $25 million. As of June 30th, total liquidity was $440 million. Year-to-date, we have successfully delivered a 93% increase in adjusted EBITDA over 2022. We are making meaningful and sustainable gains towards complete recovery and beyond, and believe the third quarter will move us closer to our goals. Regarding third quarter guidance, in yesterday's press release, we guided to third quarter RevPAR growth of 10% to 10.5% over the prior year and adjusted EBITDA in the range of $73 million to $78 million. We expect third quarter occupancy to be higher than the second quarter, driven by continued sequential monthly increases throughout the third quarter. As reported yesterday, July weighted average occupancy was above June as anticipated and reflected in our guidance. We anticipate some normal pressure on our third quarter RevPAR as is typical as part of normal seasonal attrition patterns. Pivoting to adjusted EBITDA guidance, achieving third quarter adjusted EBITDA in the range of $73 million to $78 million would produce another very strong quarter of sustainable progress. As a reminder, the prior-year third quarter included $61 million of Phase 4 Provider Relief Fund recognized in our adjusted EBITDA results. When considering the midpoint of the third quarter guidance range, and normalizing for the recent changes in lease classification and the sizable prior-year grant, our adjusted EBITDA increase over the third quarter of 2022 would be 130%. Considering this guidance sequentially when compared to the second quarter, the anticipated third quarter increase in occupancy that I spoke to will deliver both revenue growth and expense leverage. In addition, through continued diligent and appropriate expense management, we expect to partially mitigate the impact of normal third quarter seasonality factors, which are unfavorable sequentially. These normal seasonality factors are expected to impact our adjusted EBITDA results by approximately $10 million and are outlined on the last page of our investor presentation. Finally, there's a $3 million incremental sequential impact from the Welltower transaction, since the transaction only had a pro-rata change in lease classification impact in the second quarter from a mid-quarter closing. While this lease accounting change will impact adjusted EBITDA, it is important to note that it will have no impact on our adjusted EBITDAR, a standard and widely used non-GAAP valuation metric, and will not impact our adjusted free cash flow. This was merely a change in accounting from finance lease to operating lease. We are confident in the successful execution of our third quarter plans and look forward to delivering another quarter of solid results. Lastly, Cindy shared with you the way in which we are thinking about our long-term outlook and the robust organic growth opportunity before us. We have included a new slide in our investor presentation that quantifies the potential opportunity from returning occupancy and segment operating margin to their pre-pandemic levels. We believe that by achieving the recovery milestones shown on the new slide, our senior housing operating income would increase from its current level to approximately $1.1 billion annually with additional opportunity from future RevPAR growth. This magnitude of growth would support exceptional adjusted EBITDA and meaningful positive cash flow. Our teams are diligently working toward this objective with a long-term vision that we are not only capable of achieving this goal but exceeding it. In closing, we've had many significant achievements during the first half of 2023. There are still substantial underlying opportunities for us to capture as we complete our recovery from the impact of the pandemic. I know that our disciplined approach to ensuring quality and sustainable forward progress will yield favorable results, both in the short term and for the years to come. I'll now turn the call back over to Cindy.

In the midst of an evolving industry landscape, we are starting to see the beginning of a multi-year cycle of remarkable progress. The broadly anticipated supply and demand dynamics strengthen our runway for organic growth. Additionally, as I've shared, Brookdale's unique advantages establish us as the leader in the senior housing industry. These competitive advantages, coupled with our passionate and committed associates, with their unwavering focus on enriching the lives of those we serve, lay the groundwork for an incredibly promising earnings future. We are eager to embrace the opportunities of this new era in senior living. And while there's often a temptation to seek rapid growth and immediate results, I believe that sustainable success is the outcome of careful planning, solid execution, and measured steps. I see a clear path into a long and successful future for Brookdale. Operator, please open the line for questions.

Thank you. Our first question comes from Ben Hendrix from RBC. Ben, your line is now open. Please proceed.

Thank you. Good morning, and congrats on the strong quarter.

Hey, Ben. Good morning.

Good morning. I certainly appreciate your thoughts on the operating income potential as we get back to pre-pandemic occupancy that you've set forth in the presentation. Clearly, strong fixed cost leverage highlighted there. Can you talk about the staffing assumptions baked into those numbers? And are we at a total staffing level that can sustain pre-pandemic occupancy? Or would you require further reduction in agency costs to fund a larger number of full-time staff to achieve that $1.1 billion scenario you highlight? Thanks.

Ben, there are a lot of really good questions within that overall question. What I would say is that the slides that we've added on page 17 of the investor deck really demonstrate the massive leverage that is built within our portfolio. The way we did the calculation is we did not assume any RevPAR growth, despite the fact that we have a history of increasing rate over our cost increases. We also assumed that we would get to the midpoint of our historical operating ranges, and this recognizes that we would have to increase the size of our workforce as we do increase the occupancy of the portfolio. But what I'm really grateful for is that in 2022, we increased our workforce by 15%. During 2023, we've seen stabilization of that workforce. I think that the labor markets are recovering and I think that as we grow occupancy, it should be something where we can grow the necessary associates through a disciplined approach. I don't see us getting back into a situation where we see significant contract labor like we had in 2022. I think that we will be able to grow our workforce where we need it slowly, over time, as we rebuild that occupancy.

Thanks. And as a follow up to that, given the favorable supply and demand dynamics that you highlighted, can you talk about your forward view of industry rank overall, and specifically, Brookdale's ability to sustain a strong RevPAR momentum that you've seen in recent quarters? Thanks.

Yes. Look, I think that our focus at Brookdale is to ensure that we are providing high-quality, valued services and we want to make sure that we're balancing affordability for our residents with good stewardship of the revenue that we receive through them, through tight expense control. I do think that with very strong supply and demand economic trends coming forward, there is a good opportunity for us to appropriately price our product while growing profitability and cash flow of the company.

Thanks, guys. Great quarter.

Thanks, Ben. We were pretty happy.

Our next question comes from Josh Raskin from Nephron Research. Josh, your line is now open. Please proceed.

Hi. Thanks. Good morning. As you look at January 1, 2024, do you think there's an opportunity for outsized pricing again? Does the cost structure seem to be normalizing, and do you think competitors are getting back to more discounting, perhaps resulting in a more competitive pricing environment?

Yes. If I look forward to January 1st, I think that we're definitely seeing cost pressures decline. You can see the rate of inflation for all costs is coming down. So we don't have the same situation that we had in 2022 going into 2023. We're making progress, and we're seeing a more normalized inflation in our costs. So, I think that's something that we'll take into consideration for our January 1st price increases. Now, with regard to the competitive environment, 90% of our competitors operate five or fewer communities. It's always true that you see everything in the market, and some markets are more competitive than others. We've seen it be particularly competitive in Los Angeles, Houston, and Orlando. But it's always the case that we have some markets that are more competitive than others. What I will say is that we're really focused on making sure that we provide high-quality, valued services at an affordable price point for our residents. We're really excited about the value of assisted living. If you think about the fact that assisted living and memory care is 25% of the cost of having a home healthcare aide, and that doesn't even include the cost of someone who stays at home. I think it's an attractive product for people who need our services. But there will be times when there’s discounting, and we need to ensure that we can appropriately differentiate the value that Brookdale provides compared to our competitors. HealthPlus is one of the reasons that I think we will be able to do that even better in the future, with 78% lower hospitalizations than similar people who live at home and 36% lower hospitalization rates.

Okay. So, we should start thinking more about a RevPAR number that's maybe more consistent with historical levels and not certainly moderated from what we're seeing this year.

Yes. We're not issuing guidance at this point, but what I will say is I would expect some moderation in 2024 compared to 2023.

Okay. And then can you give some statistics on retention and sort of average length of stay, monthly stay for your residents? I'm curious how that looks relative to pre-pandemic and really just trying to get at the acuity of your residents and maybe the opportunity to sell additional services as you talk about HealthPlus, and if that current resident base should be generating maybe more revenue than prior to the pandemic.

Yes. Looking at our overall portfolio, our average length of stay is slightly under two years. That certainly varies by product line, with memory care being the shortest, assisted living being in the middle, and independent living being the longest length of stay. One thing that is true is because we have been building our occupancy, we now have a higher mix of new residents in our community. Naturally, that would press our average length of stay of existing residents down just a little bit. We've got a little bit of opportunity to improve our length of stay as we get to a more normalized occupancy and hold it. When considering the acuity of our resident population during the pandemic, we ended up with a higher acuity resident who moved in, but that has returned to pre-pandemic norms in the last couple of years, both 2022 and 2023. That’s something that's a positive trend because during the pandemic, people hesitated to move in until they really needed the care and services. Now they're moving in at a more normalized acuity compared to pre-pandemic, which should bode well for a longer length of stay. When I think about what HealthPlus can do for us, it's only in 50 communities at this point. Again, I think what that will do is attract individuals focused on maximizing their health span, and I think that we are uniquely positioned to help seniors who are looking for that as they continue their lives.

Okay. All right. So, it sounds like probably there's a lot going on, but it’s really just the growth in the new residents that have brought that number down a little bit. So maybe a little apples to oranges.

Yes. I will say that we did have higher move-outs for financial reasons due to the larger than normal rate increase. But I do think we saw sequential improvement between Q1 and Q2. We’ve seen continued improvement in that in the month of July. So I think we made the right decision to factor in the cost of operating our services into our rate increase. But that was a factor that affected our occupancy rate and our sequential growth in the first half of the year. Thanks, Josh.

Our next question comes from Joanna Gajuk from Bank of America. Joanna, your line is now open. Please go ahead.

Oh, thank you. Good morning. Thanks for taking the question. So, if I may, just a couple of questions on the guidance here for the third quarter. So, you outlined, obviously, the seasonality right, quarter-over-quarter headwind there. But I guess you expect $5 million to $10 million growth at the core to help offset that. So, I guess, can you help us understand that number? How much do you assume grant income will be in that number? I understand that occupancy growth is driving this and the fixed cost leverage there. And also, is there any benefit from selling the entrance fee community in the second quarter?

Hi, Joanna. This is Dawn. Thank you for the question. Let me just turn to page 10 in our investor presentation. If you think about our second quarter, we had said in the second quarter that we had expected grant income, and we recorded a little over $4 million that would have been included in our guidance number. So, if you think about just the grant income, we'll expect a little less in the third quarter, but nothing material. So, just walking you from second quarter to third quarter, our normal seasonality factors are outlined on the last page of our investor deck. We expect higher utilities in the third quarter that’s seasonal. We also expect an extra work day, which is mostly labor. We’ll also have two of the days in the third quarter versus the second quarter that are either a weekend or a holiday where we have incremental labor costs. The second piece is really the impact of the lease classification. Because Welltower had a mid-quarter impact in the second quarter, there is a small lease reclassification that again results in a reduction of our adjusted EBITDA sequentially, but has no impact on our EBITDAR or our adjusted free cash flow. The performance expectations we have for the $5 million to $10 million is driven by increased occupancy and normal seasonal impact on our RevPAR. As occupancy increases, we expect to leverage our fixed cost structure and have better expense management in the third quarter. If you saw the expense management that we showcased in the second quarter, we expect to continue that in the third quarter. Regarding the entrance fee community, there's not anything material between Q2 and Q3. It did produce adjusted EBITDA, but in the big picture for Brookdale, given our size and scale, it's just not material.

Great. No, that's helpful. I guess, to summarize the core growth of $5 million to $10 million sequential growth is really occupancy-driven and leveraging of the fixed cost rate. That's the way to think about it.

Yes, and the continued expense management.

So, on the occupancy rate, you mention a 10% to 10.5% RevPAR guide year-over-year. It seems like that implies occupancy growth of about maybe 90 bps quarter-over-quarter. Is that in the ballpark? You disclosed that July occupancy increased 30 bps, so does that imply that you assume the other two months also follow a similar pace? How should we think about this guidance for Q3 versus Q2 occupancy growth?

Joanna, thank you. I would say that we're not guiding, we're not giving specific occupancy guidance for the third quarter. But I think your thought process is fair, particularly as you think about the RevPAR pressure and the normal seasonality on the RevPAR pressure. And then pointing back to the assumptions page in our investor deck, where we had our historical high seasonal growth in the third quarter coinciding with the summer selling season.

And if I may just last one on that slide. The non-development CapEx implies some deceleration there sequentially in Q3 from Q2. How should we think about it going forward in terms of CapEx? I guess some of your peers talk about more development spending in the communities. Do you expect more CapEx as you head into next year?

What I will say about CapEx is we spent a total of $120 million in the first and second quarter combined. We had elevated CapEx because within those numbers, remember, we had Hurricane Ian and Elliott CapEx spend. We've spent a total of $24 million in reimbursable costs, of which we've received $9 million in reimbursements. What you’ll see in the second half of the year is the remaining portion of our $200 million of non-development CapEx spend, so about $40 million a quarter for the last two quarters. You will also see that reimbursement come through in the back half of the year for the hurricane-related spend.

And we’re just in the middle of our budgeting process for 2024. So, we're not ready to go there yet, but at the appropriate time, we'll share our expectations for next year and the continued growth that we have getting back to our pre-pandemic, and beyond, occupancy and margins.

Thank you.

Thanks, Joanna.

Thanks, Joanna.

Our next question comes from Steven Valiquette from Barclays. Steven, your line is now open. Please proceed.

Great. Thanks. Good morning, everybody.

Good morning, Steve.

Good morning. Given some of the trends observed this quarter across the industry regarding sequential occupancy across different property types, I am interested in your sequential occupancy trends and outlook for Assisted Living, Independent Living, and CCRC, particularly since CCRC occupancy appears to be declining slightly. I realize it's a smaller segment for your company, but I would appreciate more information on the different property segments. Thank you.

Yes. It's a good question, Steve. IL recovery has been a little softer than the rest of the portfolio in terms of sequential occupancy. Our CCRCs are smaller in number, so anything that affects a single community in the CCRCs can have an outsized impact. Dawn talked about some effects related to Winter Storm Elliott earlier as it related to CapEx. We did have one of our CCRC communities that was heavily affected by Winter Storm Elliott, so that does have an outsized impact. We also talked about some pressure that we were seeing in Houston, where one of our CCRCs is not performing the way that we would like it to. So that also affects our performance. But certainly, we see strong growth in our memory care, and that is something we would expect to continue, along with Assisted Living as well.

Okay. All right, that's it for me. Thank you.

Thank you.

Ladies and gentlemen, this concludes today's call. Thank you for joining. You may now disconnect your lines. Have a great day. Thank you.