Brookdale Senior Living Inc (BKD) 2021 Q3 法說會逐字稿

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 the Brookdale Senior Living's Third Quarter Earnings Release Call. (Operator Instructions) 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.

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 the 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 each non-GAAP measure from the most comparable GAAP measure, 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.

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 6 years. Including October, we now have an eighth 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 1. 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 worked 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 service 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 the 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 vaccination. 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 continue 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 teams helped us achieve occupancy gains that outpaced 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 3-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 ED retention rate remained around 70% and that about 2/3 of our EDs have been in their roles for more than 2 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 gained 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 3 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.

Thanks, Cindy. There are 3 key takeaways related to our financial results. First, RevPAR. I am pleased that the 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 to 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 continue 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 workday 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 noncash stock-based comp, 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 Health Care Services associates who transitioned with the business to HCA Healthcare effective July 1.

Adjusted EBITDA for the third quarter 2021 was $35 million compared to $55 million in the third quarter 2020, excluding the Ventas onetime 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 onetime 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 nondevelopment 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 30, total liquidity was $646 million, $258 million higher than at the end of the second quarter. The main benefit was the net proceeds from the HCA Healthcare transaction.

Pivoting from the 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 health care professionals feel confident referring their patients to senior living. We expect sequential occupancy growth, which includes October results and anticipate 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 1 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 of 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 nondevelopment CapEx. We expect to invest approximately $50 million in the fourth quarter. There are 2 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 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 the 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 1 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 8 months, we still have a significant opportunity for both top line growth and margin expansion. The senior living industry, Brookdale in particular, is primed for future growth.

I will now turn the call back over to Cindy.

Thank you, Steve. The health and well-being of our residents and associates is always our top priority. I'm inspired by our everyday heroes and their efforts across our entire organization, from community to corporate associates. Their dedicated efforts help keep us the #1 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 Instructions) Our first question is from Tao Qiu from Stifel.

Congrats on the fast rollout 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 assumption of any cost efficiencies either on the OpEx side or the G&A side in the fourth quarter?

Tao, 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.

Yes, 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 4 out of the 6 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 will get you to the occupancy growth rate from third quarter to fourth quarter that you can model.

Rate -- 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.

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

Yes. Those are really good questions. There's no question that the federal supplemental unemployment put a lot of pressure sort of on our business in that a worker could, in many cases, make more sitting at 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 sort of 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. The pressure really is in nursing staff as well 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 sort of 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.

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

Yes. There are 3 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 3 things are key factors that will help us increase our rates as we go into our January 1st rate increases.

Our next question is from Josh Raskin from Nephron Research.

What percentage of your facility operating expenses are labor? And does that vary much AL versus IL or I guess, Memory Care? I assume there's a little bit more there.

Yes. As you would expect, in IL, that 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 in labor. And then from AL to Memory Care, you've got more on labor there.

Steve, do you want to talk a little bit about the percentage question that Josh raised?

Yes. You bet, Josh. Generally speaking, it's kind of in the 65% range, 65% to 70% range labor as a percentage of total OpEx. Now it's -- 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.

Perfect, perfect. And then you mentioned construction and I think 6-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 for kind of -- what do you think the next steps there are? Because, to your point, demand seems to be coming back, and that typically elicits more construction.

Yes. If I look at sort of the industry and Brookdale, what I'm really excited about for Brookdale is that starts around our communities are down 88% and are 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 that we're seeing will also make it harder for sort of new projects to get completed. Because if you think about the value of having preexisting 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 there are supply chain disruptions that are preventing materials from being delivered on a timely basis. And it's hard to get 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.

Got you. Yes, that makes sense. I haven'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 2 numbers. I heard a 95%, but then I heard a 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 of 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 of holdouts?

Yes. Let me start by saying the 95% of residents is -- that's 100% of the resident population. And our over 90% -- as of this morning, it was 94% when I checked it just before I came in of eligible associates. And what that 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 workers over 100 -- or companies 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, 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.

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

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

Our next question is from Brian Tanquilut of Jefferies.

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, if this is a 1 quarter aberration or if this is more of a dynamic trend.

Yes. I still 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 sort of 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.

Got it. And then the nice thing about staffing -- I 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 kind of like bonus-driven or kind of like artificially inflated number that we should revert back to a more normalized level over time?

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, right? 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 offset in part that higher wage increase. And 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 as we get our retention back to -- 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 onboard. But net-net, our labor will grow in 2022 relative to 2021, but there's a lot of things happening underneath that number.

Got you. And then last question for me. With all the puts and takes and since you called out your expectation for labor next year, without giving guidance, I mean, do you think that Brookdale will be able to grow EBITDA in 2022 versus '21?

Yes, Brian. So right, without giving guidance, I can give you some top of the waves for 2022. The -- we believe occupancy will grow in 2022. RevPOR is expected to increase really to -- as we've already discussed, to reflect the inflationary environment we're in, which means a higher-than-average rate increase. And Cindy gave you 3 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 just 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 guide.

Yes. And Brian, just to add just a little bit of context behind what Steve said. NIC had their fall conference earlier this week. We didn't -- 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 sort of the environment that we're operating in.

Our next question is from Steven Valiquette from Barclays.

So I think at this point, every critical topic has been touched on here, including that last question kind of hit on what I wanted to touch on, but just to follow up anyway. I was surprised by your comments around still having rate pressure in the industry in '21. 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 6 months already. I would have thought pricing would have been more rational already. That's all fine. There's no question there.

I guess my question really, at the end of the day, is what you just touched on a little bit. Is there a sense for operators that there could be just kind of a sea change in the mentality from calendar '21 to calendar '22? If the industry is sort of in the process of setting rates for '22 right now at least for renewals, et cetera, could there be a change? And then maybe just to be more direct about this, if you had to predict right now what you think the senior housing industry RevPAR growth will be in '22 versus '21, what number or range would you put on that right now for '22 for the industry?

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 is less supply. The demand environment is better because, starting next year, there's at least 1 million new potential customers in the market. For Brookdale, our brand awareness is high because we've got 2x the unaided brand mentions as our next closest competitor, and we've got really high customer satisfaction, as evidenced by the J.D. Power Award.

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.

Our next question is from Joanna Gajuk from Bank of America.

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

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

Yes. Joanna, we kind of bucket higher-than-normal overtime and contract labor in the -- kind of in the same bucket, if you will. And that needs to be replaced by regular productive work labor hours. So it's -- 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 details, I think, for 2022 coming up during the fourth quarter earnings call.

Okay. That makes sense. I guess any quantification in terms of like is it -- was it like 5%, 10% of your labor costs or any way you can frame it, that will be helpful. I guess we'll look into early next year to talk about this again.

But my other question was about CapEx. So I understand that you're looking at your budgets for next year. But any way or any kind of framework in terms of CapEx outlook for next year? Because also you continue to expect the $140 million for this year for nondevelopment CapEx, but then it sounds like the development CapEx was lower. So are there some projects being pushed out into next year? And what are these projects? Are you expecting acceleration in either of these buckets for CapEx?

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. Just kind of top of the waves on CapEx nondevelopment, we expect $2,000 to $2,500 of CapEx, net of landlord reimbursements, per unit in 2022. As far as the 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.

Our next question is from Frank Morgan from RBC Capital Markets.

So my question, sticking on the rate increases going forward. I'm curious if any of you all could maybe look back at precedent here in past cycles where you were able to raise rates kind of in the early part of the cycles, what kind of effect that had in terms of the impact on occupancies for in-place residents. Was there much of a loss of occupancy when that first occurred? Or just do you have any color on that? I'm trying to remember back when that would have been. I'm thinking back maybe in the early -- very early 2000s, but any reminders would be great.

Yes. Frank, we have always been very successful 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 a 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, 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 at the time of rate increase, we generally don't see significant attrition from a rate increase.

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

Not kind of across the board, Frank. We -- 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 that's just -- it all boils down to labor.

I hope it's not due to hurricane season, Steve.

Is it not over?

It's not quite over yet.

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, as that comes back down, is there -- maybe I missed this, but is there any kind of dollar amount or framework that you're saying you're above what you think you would be at, at normal times that we could kind of consider as we start thinking forward?

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

Okay. Are there any more questions? I don't think there are. So 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, and we look forward to talking to you all soon. That concludes our call.

This concludes the conference call, and you may now disconnect your lines.