Earnings Call Transcript - BKD Q3 2021

Operator, Operator

Good morning ladies and gentlemen. My name is Harry, and I'll be your conference operator today. At this time, I would like to welcome everyone to Brookdale Senior Living's Third Quarter Earnings Release Call. All lines are on mute. We will open the lines for questions at the end of the call. As a reminder, this conference call will be recorded for replay purposes. I would now like to turn the call over to Kathy MacDonald of Investor Relations.

Kathy MacDonald, Investor Relations

Thank you, and good morning. I'd like to welcome you to the third quarter 2021 earnings call for Brookdale Senior Living. Joining us today are Cindy Baier, our President and Chief Executive Officer; and Steve Swain, our Executive Vice President and Chief Financial Officer. All statements today which 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 of the factors that could cause actual results to differ are detailed in the earnings release we issued yesterday as well as in the reports we file with the SEC from time to time, including the risk factors contained 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. Also, please note that during this call, we will present non-GAAP financial measures. For reconciliations of our non-GAAP measures to the most comparable GAAP measures, I direct you to the release and supplemental information, which may be found at brookdale.com/investor and was furnished on an 8-K yesterday. Now I will turn the call over to Cindy.

Cindy Baier, President and Chief Executive Officer

Thank you, Kathy. Good morning to all of our shareholders, analysts and other participants. I hope that you and those you care about are safe and sound. Welcome to our third quarter 2021 earnings call. In the third quarter, occupancy sequentially increased 200 basis points and more than doubled the second quarter sequential increase of 90 basis points. The growth in the third quarter was our largest average occupancy increase in at least the last six years. Including October, we now have an eight consecutive month trend of occupancy growth and we are building for our long-term success. Combining our occupancy growth with a robust RevPOR. For the third quarter RevPAR was within 1% of the prior year quarter. With our strong sequential occupancy growth we continue to win the recovery. Even with the wax and wane of the pandemic we continue to see positive momentum of top-line growth. In addition to our top-line growth we continue to strengthen our liquidity from several recent and significant transactions. In July we increased liquidity by more than $300 million as we successfully completed the 80% sale of our home health, hospice and outpatient therapy business to HCA Healthcare. We retained 20% of the newly formed venture to benefit from the future growth of this business. The second significant liquidity strengthening transaction closed on October 1st. We executed a $230 million convertible notes offering that was significantly oversubscribed. Steve will highlight our plans to use these proceeds. My final financial highlight, but certainly not the least, is that strong September month-end move-ins allowed us to deliver results better than our third quarter expectations. Our positive financial results are only possible because of the dedicated efforts of our amazing, diligent team who work 24/7 to help keep our residents safe and engaged. I also appreciate the regional and corporate teams that support our community efforts, so that we all can deliver and celebrate our progress, which positions Brookdale for long-term success. Recently we announced several key leadership team promotions. We have a wide range of seasoned leaders with depth of Senior Living expertise within our organization. I'm pleased that we executed on our internal succession plan and promoted from within Brookdale at multiple levels of the organization. Kevin Bowman was promoted to Executive Vice President, Community Operations. Kevin brings 30 years of Senior Living operational experience to this position and most recently served as the West Division Vice President. He is well regarded by associates and residents for his servant leadership and has a track record of developing talent. He hit the ground running in his new position and has already made a number of positive impacts. Due to his leadership and talent development expertise one of his direct reports Laura Fischer, with nearly 20 years of Senior Living experience, was promoted to Kevin's previous role to lead operations as the West Division Vice President. Laura will work closely with another 30-year Senior Living veteran Ben Ricci, who leads operations as the East Division Vice President. With a combined 80 years of Senior Living experience I am excited to see the business grow under the leadership of this operational power trio. We thank previous EVP and President, Senior Living Community Operations, Cindy Kent for her contributions to Brookdale. Turning to an update on our vaccine clinic strategy. Well in advance of the CDC's approval our teams were preparing for COVID-19 booster shot clinics to help further protect our residents. As with the initial vaccine clinics, our clinical and administrative teams did a tremendous job. For example, when the Pfizer booster was officially approved on a Friday, by the following Monday several of our communities had started our booster clinics. We successfully hosted COVID-19 booster and flu shot clinics in the vast majority of our communities. Our associates have also stepped up to get their COVID-19 vaccinations. Over 90% of eligible associates have received at least one shot. And this is before our targeted completion deadline. I'm grateful that our associates are leading the way in this effort and taking this important step to help protect our residents, themselves and others. The high vaccine acceptance rate for our associates is a very important accomplishment since residents, their families, prospects and health care professionals expect us to do our part to help protect those in our communities. We believe that seniors are more apt to move into our communities when they know both residents and associates are vaccinated. Now turning to financial related remarks for the third quarter. The Senior Housing Industry, as reported by NIC, showed third quarter sequential occupancy growth of 120 basis points on a stabilized basis. I'm pleased Brookdale's occupancy grew faster with 210 basis points growth on a same community basis. Our occupancy increase in the third quarter is outstanding in light of the delta variant challenge in the general population. Within our communities delta had a smaller impact than the pandemic wave last winter, because around 95% of our residents are fully vaccinated. We are also pleased that we delivered sequential quarterly occupancy growth in every segment of our business. Sequential occupancy growth in independent living accelerated in our largest segment; assisted living and memory care occupancy continued to deliver strong results. Our sales transformation strategy and marketing investments continued to deliver benefits as we accelerated move-ins, improved visit-to-move-in conversion ratios and strengthened the closing process. The commitment and performance of our sales, marketing and operations team helped us achieve occupancy gains that outpace the industry for the second quarter in a row. In addition, our move-in recovery exceeded historical normal levels with September exceeding 100% of the three-year average from 2017 to 2019. This progress demonstrates that we are firmly on the road to recovery. Turning to operating expenses. As we highlighted in our last earnings call, we expected third quarter expenses would be higher mainly driven by labor. Our results demonstrate the intensely competitive labor market seen across many industries. We are pleased that our community executive directors, or EDs, retention rate remained around 70% and that about two-thirds of our EDs have been in their roles for more than two years. The stability of our community leadership helps drive positive performance and provides an environment in which our new hires can get the training they need to become important members of their Brookdale communities. The intense labor environment is in the news daily with hospitals reducing elective surgeries because they don't have enough nursing staff and restaurants reducing service hours because they don't have enough workers. However, eliminating critical services or reducing hours aren't options for Brookdale. We are in the people-taking-care-of-people business around the clock, 365 days a year. Because of the fierce talent wars we were required to use expensive contract labor and overtime to maintain our high-quality services and to support our occupancy growth. Hiring to fill open positions is a key priority. I still expect the intensity of the competitive labor market to be transitory and we will continue to work through the challenges. Steve will provide other operating expense details including normal seasonal third quarter trends. Before I turn the call over to Steve, I'd like to comment on our fourth quarter outlook. It is noteworthy that this is the first time since the pandemic began that we are providing guidance. In the early days of the pandemic we committed to return to our normal financial outlook practices as we gain confidence on our path through the COVID-19 pandemic. We are providing fourth quarter guidance today and expect to return to providing annual guidance next year. We have momentum entering the fourth quarter and expect sequential occupancy growth will drive higher adjusted EBITDA on a sequential basis. To win the recovery and drive long-term growth we continue to focus on three priorities: attracting, engaging, developing and retaining the best associates; earning resident and family trust by providing valued high-quality care and personalized service; and getting every available room in service at the strongest possible rate. I'll now turn the call over to Steve.

Steve Swain, Executive Vice President and Chief Financial Officer

Thanks Cindy. There are three key takeaways related to our financial results. First, RevPAR. I am pleased that third quarter year-over-year RevPAR was within 1% of the prior year quarter. In addition, we outpaced the industry's occupancy growth on a sequential basis. The strong quarterly sequential occupancy gains we've made this year with continued price discipline are driving the business forward. Second, operating expenses. Sequentially G&A savings from the HCA Healthcare transaction helped mitigate a sizable portion of the higher community labor expenses Cindy mentioned. The resulting adjusted EBITDA increased 5% sequentially. And third, liquidity. We are pleased with the actions we've taken throughout the pandemic to fortify our balance sheet and enhance liquidity. With the completion of the HCA transaction liquidity increased more than $250 million in the third quarter. And we recently issued $230 million of convertible notes which were significantly oversubscribed. This capital raise was the first step in our proactive refinancing plan. The second step will be to refinance the first quarter 2022 maturities, which I'll discuss a bit later. Now let me provide context for these highlights starting with revenue on a same community basis. RevPOR, or rate, was more than 3% higher than the prior year on both a quarter and year-to-date basis. We continued to see industry discounting during this pandemic-related lease-up period. In the third quarter we used targeted discounting where necessary to remain competitive, while maintaining overall rate discipline. Consistent with this strategy the third quarter RevPOR was slightly lower on a sequential basis. Combining rate with occupancy growth in the third quarter we were close to turning RevPAR positive on a year-over-year basis. In fact the CCRC segment delivered year-over-year revenue growth. Turning to operating expenses. On a sequential basis labor expense was higher mostly due to the difficult labor market. We used contract labor and overtime to fill open community positions. In addition, there were seasonal labor increases from an extra work day and holiday in the third quarter. Besides higher sequential labor costs, other facility operating expenses increased sequentially due to regular seasonal costs such as utilities. For G&A excluding transaction and organizational restructuring costs and non-cash stock-based compensation, the third quarter expense was 6% lower than the prior year quarter and 17% lower than the second quarter of 2021. This was primarily related to the healthcare services associates who transitioned with the business to HCA Healthcare effective July 1st. Adjusted EBITDA for the third quarter 2021 was $35 million compared to $55 million in the third quarter 2020 excluding the Ventas one-time cash payment of $119 million in the prior year quarter. The pandemic's impact was the major driver of this year-over-year change. Adjusted free cash flow was negative $43 million compared to the prior year period of $5 million excluding the one-time Ventas payment in the third quarter 2020. In addition to the change in adjusted EBITDA, the other large driver of the year-over-year change in adjusted free cash flow was due to the CARES Act. We benefited by approximately $30 million last year mainly from the payroll tax deferral program. Turning to non-development CapEx. The third quarter was slightly higher than the prior year quarter; compared to the second quarter 2021 CapEx decreased in the third quarter due to receiving additional landlord reimbursements as certain projects were completed. Turning to the third key highlight, liquidity. As of September 30th, total liquidity was $646 million, $258 million higher than the end of the second quarter. The main benefit was the net proceeds from the HCA Healthcare transaction. Pivoting from third quarter results let me share context for our fourth quarter guidance. As the fourth pandemic wave caused by the delta variant subsides we are seeing prospects explore Senior Housing options. For example, in new research 88% of healthcare professionals feel confident referring their patients to Senior Living. We expect sequential occupancy growth which includes October results and anticipates relatively normal seasonal trends around the holidays. We expect occupancy growth to drive higher sequential adjusted EBITDA as we close the year. Turning to the key elements of the fourth quarter liquidity outlook. We closed the convertible notes on October 1st and received $208 million of net cash proceeds. The convertible notes diversify our funding sources and serve as efficient capital. They carry a low cash coupon and with a capped call allow us to realize meaningful upside in our share price without dilution. With the proceeds of the convertible notes we immediately paid off the only high interest loan in our capital structure of $45 million in October. In my introduction I touched on our proactive refinancing plan. The convertible raise was the first step in that plan. The second step which we expect to complete by year end will be to refinance first quarter 2022 maturities. To that end we plan to pay off approximately $143 million in maturities and refinance those communities with approximately $100 million of lower leverage mortgage debt thereby using approximately $43 million of convertible proceeds. Third step will be to refinance the rest of our 2022 debt maturities. Given what appears to be a rising interest environment we are currently evaluating using cash to prepay all remaining 2022 maturities early and save several million dollars of negative carry. Following this potential prepayment we would then expect to refinance those unencumbered communities with lower leverage mortgage debt. In our investor presentation we listed other fourth quarter sources and uses of cash to consider. Turning to non-development CapEx. We expect to invest approximately $50 million in the fourth quarter. There are two factors for the increase from the third quarter. As the delta variant ebbs we accelerated several CapEx initiatives to support occupancy growth. And we've completed the majority of the landlord-related projects, and therefore there will be less reimbursement in the fourth quarter. My final fourth quarter insight is related to government CARES Act grants. We are pleased that the Provider Relief Fund Phase 4 was opened to submit changes in revenue and expense related to the second half of 2020 and the first quarter of 2021. We quickly and efficiently submitted our application. Our current understanding is Health and Human Services will review all applications to determine the funding formula before making payments. We are cautiously optimistic that we'll receive the Phase 4 payment this year, but because of this potentially lengthy process we have not included any relief in our fourth quarter outlook. With residents and associates as our top priority, when I look beyond the fourth quarter horizon I have great expectations for our path ahead. Our EBITDA growth potential is immense over the next few years. With the fewest units under construction since 2015 there is a significant supply tailwind. Demand is rapidly increasing with more than one million new seniors entering the target market every year through at least 2030. Even with the encouraging occupancy recovery that we've delivered over the past eight months, we still have a significant opportunity for both top-line growth and margin expansion. The senior living industry, and Brookdale in particular, is primed for future growth. I will now turn the call back over to Cindy.

Cindy Baier, President and Chief Executive Officer

Thank you, Steve. The health and well-being of our residents and associates is always our top priority. I am inspired by our everyday heroes and their efforts across our entire organization from community to corporate associates. Their dedicated efforts help keep us the number one choice in senior housing. I'm pleased with the progress we've made from a business and financial perspective since the onset of COVID-19, and I look forward to our continued success. We have taken significant steps to support our operations and improve our liquidity in order to go beyond just weathering the storm to setting the foundation to advance Brookdale into a firm position of strength and to accelerate future growth. Thank you for joining us today. And I look forward to sharing our continued progress in the near future. Operator, please open the line for questions. Thank you.

Operator, Operator

Thank you, Cindy. Our first question is from Tao Qiu from Stifel. Tao, your line will be open now if you'd like to proceed with your question.

Tao Qiu, Stifel Analyst

Hi, good morning. Congrats on the fast roll-out of the booster clinics. So I wanted to first dive a little bit into the 4Q guidance. I think it suggests a sequential increase of maybe $0.5 million to $5.5 million. Just wanted to understand a bit more on the assumptions there. I think, Steve, you mentioned that you expect occupancy growth to drive higher adjusted EBITDA, but also acknowledged normal seasonality. So how should we think about the range of occupancy that would get you to the high end and the low end of that guidance? And are there any assumptions of any cost efficiencies either on the OpEx side or the G&A side in fourth quarter?

Cindy Baier, President and Chief Executive Officer

Tao, good morning and thank you so much for your questions. We are so excited about the progress that we're making on our COVID-19 vaccine clinics. Our team is just working literally around the clock to get our last clinics completed. Steve will answer your questions on the outlook.

Steve Swain, Executive Vice President and Chief Financial Officer

Yep. Morning Tao. So, you're right. This is the first time we've provided guidance since the pandemic started, which we're excited about. On occupancy, we do expect sequential occupancy growth and that anticipates kind of the normal seasonal trends around the holidays. Now we do have four out of the six months of occupancy already in the books and we'll continue to provide occupancy updates each month for the rest of 2021. But kind of considering relatively small even occupancy growth in November and December, I will get you to the occupancy growth rate from third quarter to fourth quarter that you can model. Rate is just kind of ticking through the revenue growth. We expect rate to be flattish to slightly lower on a sequential basis. And then expenses, we're still in a competitive labor environment which is challenging, and we expect labor expenses to be slightly higher in Q4. Now that said, we do believe the competitive labor environment to be transitory and we're starting to see some early green shoots in that regard. So net-net, we do expect occupancy growth to drive higher sequential EBITDA, higher NOI and then that will fall through to EBITDA if you assume kind of flattish to slightly better G&A.

Tao Qiu, Stifel Analyst

Thank you. Just wanted to understand a little bit more on the labor dynamics there. Are there any differences that you are seeing in markets where the supplemental unemployment benefits have ended and those that have not? And in terms of your agency and overtime usage in the fourth quarter, do you expect that to be higher than 3Q or would that normalize a little bit too?

Cindy Baier, President and Chief Executive Officer

Yes. Those are really good questions. There's no question that the federal supplemental unemployment put a lot of pressure on our business in that a worker could in many cases make more sitting home on their couch than they could actively working. What we saw after the federal supplemental unemployment ended is we saw an increase in applications. We saw fewer people ghosting us in terms of not providing accurate information for an interview or just not showing up for the interview. And what we're seeing is the labor market is intensely competitive and the challenges throughout the economy are pretty pervasive. But the pressure really is in nursing staff, as well as in hourly positions. So, we're responding to this very dynamic labor market appropriately. We're actively reviewing wages and adjusting them where necessary to remain competitive. Now our belief is that as we do this we will be able to reduce contract labor and overtime. But it's going to take a little bit of time and we still do expect to see those being elevated in the fourth quarter. Now if I look at our turnover in hourly positions, we've made progress from the peak. So we saw improvement in September and that improvement continued into October. So I do believe that some of the unemployment benefits rolling off has been helpful to us. And we are seeing just a little bit more pressure in urban markets, but in our rural markets there's a smaller pool of talent.

Tao Qiu, Stifel Analyst

Got you. And one final question from me. We're seeing that Social Security benefits are expected to grow 5.9%. I think that's the highest growth since 1982. How do you feel about the ability to raise rates coming January on your existing residents, hopefully to pass on some of the cost increases? Thank you.

Cindy Baier, President and Chief Executive Officer

Yes. There are three factors that I think will help us increase rates. I think you've mentioned one which is our seniors are seeing increases in their monthly Social Security checks; that's important. I think the second is that we're seeing occupancy in the industry firm up. And when that happens it's much easier to push rate. And then third and finally, with the cost pressures around labor, the easiest way to convince a resident that a rate increase is necessary is to explain to them that you need it to pay more to the people who are taking care of them. And so, those three things are key factors that will help us increase our rates as we go into our January 1st rate increases.

Operator, Operator

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

Josh Raskin, Nephron Research Analyst

Thank you.

Cindy Baier, President and Chief Executive Officer

Good morning, Josh.

Josh Raskin, Nephron Research Analyst

Good morning, Cindy. What percentage of your facility operating expenses are labor? And does that vary much IL versus AL or memory care? I assume there's a little bit more labor in memory care?

Cindy Baier, President and Chief Executive Officer

Yes. As you would expect, independent living has the lowest percentage of labor because it's really a hospitality model and there's not the same level of personal care that you have in either assisted living and memory care. And as you step up the care continuum from IL to AL you have more labor and then from AL to memory care you've got more labor there. Steve, you want to talk a little bit about the percentage question that Josh raised?

Steve Swain, Executive Vice President and Chief Financial Officer

Yep. You bet, Josh. Generally speaking it's kind of in the 65% to 70% range: labor as a percentage of total OpEx. Now, you can see that on page 10 of the supplement where we break out labor expense IL, AL and CCRC separate from OpEx and you'll see the various trends there.

Josh Raskin, Nephron Research Analyst

Perfect. And then you mentioned construction and six-year lows and that sort of stuff. But I am curious if there's any anecdotal discussions in specific markets. Do you think that there are signs that developers are looking to re-enter or that development could pick up? Because to your point, demand seems to be coming back and that typically elicits more construction?

Cindy Baier, President and Chief Executive Officer

Yes. If I look at the industry and at Brookdale, what I'm really excited about for Brookdale is it starts around supply: our communities under construction are down 88% and they're lower than the peak. And so I think that is something that is incredibly good for us and presents a tailwind for us for the next few years. I also think that some of the inflation that we're seeing and the labor pressures will also make it harder for new projects to get completed. Because if you think about the value of having a pre-existing portfolio, which we do, that's already priced in. The cost of building a community is going up every single day with labor inflation and supply chain disruptions that are preventing materials from being delivered on a timely basis and adequate workers to do the work. So all of those things I think are going to play to our favor and strengthen the tailwind for the future.

Josh Raskin, Nephron Research Analyst

Got you. That makes sense. I hadn't really thought about the construction labor component of that and then obviously they've got to staff the facility as well. So maybe that slows things down for a little bit. And then just lastly on the vaccines, I heard two numbers. I heard 95%, but then I heard over 90% of eligible employees. I'm curious what 'eligible employees' means? And then do you have data at this point now we're a couple quarters out in terms of move-in or close rates or sort of success rates for highly vaccinated communities versus ones where there's a couple holdouts?

Cindy Baier, President and Chief Executive Officer

Yes. Let me start by saying the 95% of residents is 100% of the resident population and over 90% of eligible associates have been vaccinated. As of this morning it was 94% when I checked it just before I came on. What 'eligible associates' means is we take out the very small percentage of people who already have an approved religious or medical exemption. So we're just finishing the last stages of our vaccine mandate. We're grateful that we are ahead of the government requirements that apply to employers with over 100 workers. So I think we're in great shape as it relates to the vaccine mandate. What we've seen is that prospects and residents have an appreciation for highly vaccinated communities and that's been good for us. I don't have specific numbers to share with you, but I can say that a vaccine mandate is good for our residents and our associates.

Josh Raskin, Nephron Research Analyst

Got you. And I'm sorry to squeeze in the last question. But the 94% of the eligible employees: what percentage of your employees are not eligible through medical or religious exemption?

Cindy Baier, President and Chief Executive Officer

It's a very small percentage, very, very small.

Operator, Operator

Thank you very much, Josh. Our next question is from Brian Tanquilut of Jefferies. Brian, your line is now open if you'd like to proceed with your question.

Brian Tanquilut, Jefferies Analyst

Good morning.

Cindy Baier, President and Chief Executive Officer

Good morning, Brian.

Brian Tanquilut, Jefferies Analyst

Good morning. I guess Cindy my question for you, just more strategically or philosophically: for the longest time you've held your ground on rates and knowing or seeing the RevPOR decline sequentially in Q3. Just wanting to hear your thoughts on that, the shift in thinking there and how we should be thinking about your ability to or interest in holding price going forward. Is this a one-quarter aberration or is this more of a dynamic trend?

Cindy Baier, President and Chief Executive Officer

Yes. I don't think it's at all a shift in strategy. Our strategy is always to get every unit in service at the strongest rate possible. What we do recognize however is that there's a fine balance between driving occupancy and driving rate. And so, if you're in an environment that is very competitive it may be necessary to use a discount to grow occupancy. And so, what we've seen in particular is independent living has had a little bit more disruption in the prospects that are coming to that portion of the industry, but it also had higher occupancy because it had a longer length of stay. So we've been very targeted in the third quarter as always about when to use a discount so that we can try to drive the highest possible revenue per available room.

Brian Tanquilut, Jefferies Analyst

Got it. And then a nice thing about staffing — I know we don't want to beat a dead horse here — but do you think that the cost structure has reset now and this is the right baseline to be using or is this a temporary, artificially inflated number that should revert back to a more normalized level over time?

Cindy Baier, President and Chief Executive Officer

So, when I think about it and Steve will add some things to it, I think that the number has a lot of variables in it. And I do think that the base wage, the hourly rate of workers, will be higher in 2022 than it is in 2021. But I think there are some things that will partially offset that higher wage increase. One is contract labor. We have used more contract labor in 2021 than we historically have, because of the extra pressures put on our team because of COVID-19 whether it was the vaccination clinics, whether it was the special resident care areas, or whether it was just the disruption caused by the economy restarting. So that's driven contract labor and overtime. I also think that with turnover being higher really in the second quarter and the first part of the third quarter that caused us to do a lot more training hours. And I think if we get our retention and turnover back to our historical norms we'll have fewer hours that we have to use for that training that just comes from bringing new people on board. But net-net our labor will grow in 2022 relative to 2021. There's a lot of things happening underneath that number.

Brian Tanquilut, Jefferies Analyst

Got you. And then last question for me. With all the puts and takes since you called out your expectation for labor next year without giving guidance, do you think that Brookdale will be able to grow EBITDA in 2022 versus 2021?

Steve Swain, Executive Vice President and Chief Financial Officer

Good morning, Brian. So without giving guidance I can give you some top-of-the-way items for 2022. We believe occupancy will grow in 2022. RevPOR is expected to increase, really to reflect the inflationary environment we're in, which means higher-than-average rate increases and Cindy gave you three reasons why we should expect that. And as far as expenses go, we've mentioned that the labor expense we expect to be transitory. That said, we do have wage pressure due to the tight labor market. But we do expect that, as Cindy mentioned, to be partially offset by lower contract labor expense, which is already in our run rate. So a lot of puts and takes, but we do expect EBITDA to increase in 2022. In a few months, of course, I'll give you more details on the 2022 guidance.

Cindy Baier, President and Chief Executive Officer

Yes. And Brian, just to add a little bit of context behind what Steve said. NIC had their Fall Conference earlier this week. I didn't attend, I should say. But out of the industry articles that came out of it, it seems like there was a pretty widespread discussion about the need to have higher rate increases in 2022 than they traditionally have for a lot of reasons including labor. So, I don't think we're the only people thinking about how to increase rate in 2022 given the environment that we're operating in.

Brian Tanquilut, Jefferies Analyst

Awesome. Thank you guys.

Operator, Operator

Thank you, Brian. Our next question is from Steve Valiquette from Barclays. Steve, your line is now open. Please proceed.

Steve Valiquette, Barclays Analyst

Good morning everybody. I think at this point every critical topic has been touched on here including that last question. But just a follow-up anyway. I was surprised by your comments around still having rate pressure in the industry in 2021. You made that comment that when occupancy is firming up that sets a better environment for rate increases across the industry. My thought was that we've already seen occupancy firming up for six months already. I would have thought price would've started to rebound already. That's all fine. My question really at the end of the day is: is there a sense for operators that there could be a sea change in mentality from calendar 2021 to calendar 2022? If the industry is in the process of setting rates for 2022 right now, could there be a change? And then more directly, if you had to predict right now what you think industry RevPAR growth will be in 2022 versus 2021, what range would you put on that right now for 2022 for the industry?

Cindy Baier, President and Chief Executive Officer

Okay. That is a very direct question. What I'll say is that I'm optimistic about a strong RevPAR growth rate. And the reason I'm optimistic is because I do think the industry will have above-average occupancy growth in 2022. Quite honestly, we have lower occupancy than we traditionally have had and there are a lot of reasons to believe that occupancy will grow. The supply environment is better because there's a lot less supply under construction. The demand environment is better because starting next year there's at least a million new potential customers in the market. For Brookdale, our brand awareness is high because we got two times the unaided brand mentions of our next closest competitor and we got really high customer satisfaction as evidenced by the J.D. Power awards. So, I think in the industry you'll see occupancy growth. But I also think rate is going to grow for all the reasons that we've talked about. So without giving you a specific number I do expect strong RevPAR growth in 2022, and I think it will be one of the best years in the industry's history.

Steve Valiquette, Barclays Analyst

Okay. All right. That's helpful. Thanks.

Operator, Operator

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

Joanna Gajuk, Bank of America Analyst

Thank you for taking the question here. So if I may, just a very last follow-up on the labor cost discussion and staffing. I appreciate the commentary that you think it's transitory, but anyway to get a better sense of the magnitude of things here in terms of how much of your labor costs was contract labor versus overtime, just so we could get a sense how we should think about those numbers normalizing. Maybe you can frame it to us as it compares to historical, because it sounds like you have used contract labor to some degree, but obviously now it's much higher. Any framework around those metrics would be helpful?

Cindy Baier, President and Chief Executive Officer

Good morning Joanna. I can say that we've never used as much contract labor as we have in 2021. And that is due to all factors that I mentioned earlier. Steve, is there anything that you want to add to Joanna's question?

Steve Swain, Executive Vice President and Chief Financial Officer

Joanna, we kind of bucket higher-than-normal overtime and contract labor in the same bucket if you will. And that needs to be replaced by regular productive labor hours. So that's less of a detail that I look at. I look at just over-and-above regular productive labor hours. I can — we'll give more detail I think for 2022 coming up during the fourth quarter earnings call.

Joanna Gajuk, Bank of America Analyst

Okay. That makes sense. I guess any quantification in terms of like is it 5%, 10% of your labor costs or any way you can frame it would be helpful. So thanks for that. I guess we'll look into early next year to talk about this again. But my other question was about CapEx. I understand that you're working on your budget for next year. But any framework in terms of CapEx outlook for next year? You continue to expect $140 million for this year for non-development CapEx, but it sounds like development CapEx was lowered. So are there projects being pushed out into next year and what are these projects? Are you expecting acceleration in either of these buckets for CapEx?

Steve Swain, Executive Vice President and Chief Financial Officer

You bet, Joanna. So, I want to remind everyone that this is the first time we're giving guidance on the fourth quarter. But that said, I will talk a little bit more about 2022. It's kind of a top-of-the-way on CapEx non-development. We expect $2,000 to $2,500 of CapEx net of landlord reimbursements per unit in 2022. As far as development CapEx, we're still kind of identifying the projects that will go under that project umbrella and again, more to come on that number as we turn the calendar.

Joanna Gajuk, Bank of America Analyst

All right. Thank you.

Cindy Baier, President and Chief Executive Officer

Thanks Joanna.

Operator, Operator

Thank you, Joanna. Our next question is from Frank Morgan from RBC Capital Markets. Frank, your line is now open.

Frank Morgan, RBC Capital Markets Analyst

Good morning. How are you? So my question sticking on the rate increases going forward: I'm curious if any of you could maybe look back at precedence here in past cycles where you were able to raise rates in the early part of the cycles. What kind of effect that had in terms of its impact on occupancies for in-place residents? Was there much of a loss of occupancy when that first occurred or do you have any color on that? I'm trying to remember back when that would have been — I'm thinking early 2000s maybe. Any reminders would be great?

Cindy Baier, President and Chief Executive Officer

Yes. Frank, we have always been very successful at passing along rate increases without having a lot of attrition from in-place residents. And I think that has been pretty consistent whether it’s a higher or lower rate increase. Because what we're trying to do when we set rate is we're trying to say what's the fair increase in rate, what's right for the resident, and what's right for the business. And because of that approach and because we train our executive directors to have a discussion about the rationale for the rate increase, we generally don't see significant attrition from rate increases.

Frank Morgan, RBC Capital Markets Analyst

Got you. And then I guess back on the costs side, obviously we know labor is front and center. But are there any other emerging cost inputs you're seeing; where are you seeing a pickup in inflation?

Steve Swain, Executive Vice President and Chief Financial Officer

Not really across the board, Frank. Over the past couple of years we've seen some insurance pressure. But this year is not going to be any different than that. It might be slightly better into 2022, just given the hurricane season. And then, it all boils down to labor.

Cindy Baier, President and Chief Executive Officer

I hope it's not due to hurricanes; the season's not quite over yet.

Frank Morgan, RBC Capital Markets Analyst

Got you. And then I guess, just trying to get my head around this contract labor issue. In terms of the opportunity of that in your cost structure that comes back down, is there any dollar amount or framework that you're saying you're above what you think you would be at normal times that we could consider as we think forward?

Cindy Baier, President and Chief Executive Officer

I think the important thing is that the reduction in contract labor should offset some of the labor pressure that we're seeing from wage growth into 2022. Good question, Frank.

Frank Morgan, RBC Capital Markets Analyst

Thank you.

Cindy Baier, President and Chief Executive Officer

I want to thank you very much for joining our conference call today and for your interest in Brookdale. I hope that everyone has a wonderful weekend. We look forward to talking to all of you soon. That concludes our call.

Operator, Operator

This concludes today’s conference. You may now disconnect your lines.