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BKD > SEC Filings for BKD > Form 10-Q on 9-Nov-2012All Recent SEC Filings

Show all filings for BROOKDALE SENIOR LIVING INC.

Form 10-Q for BROOKDALE SENIOR LIVING INC.


9-Nov-2012

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

Certain statements in this Quarterly Report on Form 10-Q and other information we provide from time to time may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Those forward-looking statements include all statements that are not historical statements of fact and those regarding our intent, belief or expectations, including, but not limited to, statements relating to the consummation of the restructuring of the management agreements with Chartwell Seniors Housing Real Estate Investment Trust; statements relating to our operational initiatives and our expectations regarding their effect on our results; our expectations regarding the economy, occupancy, revenue, cash flow, expenses, capital expenditures, Program Max opportunities, cost savings, the demand for senior housing, the home resale market, expansion and development activity, acquisition opportunities, asset dispositions, our share repurchase program, capital deployment and taxes; our belief regarding the value of our common stock and our growth prospects; our ability to secure financing or repay, replace or extend existing debt at or prior to maturity; our ability to remain in compliance with all of our debt and lease agreements (including the financial covenants contained therein); our expectations regarding liquidity; our plans to deleverage; our expectations regarding financings and refinancings of assets (including the timing thereof) and their effect on our results; our expectations regarding changes in government reimbursement programs and their effect on our results; our plans to generate growth organically through occupancy improvements, increases in annual rental rates and the achievement of operating efficiencies and cost savings; our plans to expand our offering of ancillary services (therapy, home health and hospice); our plans to expand, redevelop and reposition existing communities; our plans to acquire additional communities, asset portfolios, operating companies and home health agencies; the expected project costs for our expansion, redevelopment and repositioning program; our expected levels of expenditures and reimbursements (and the timing thereof); our expectations for the performance of our entrance fee communities; our ability to anticipate, manage and address industry trends and their effect on our business; our expectations regarding the payment of dividends; and our ability to increase revenues, earnings, Adjusted EBITDA, Cash From Facility Operations, and/or Facility Operating Income (as such terms are defined herein). Words such as "anticipate(s)", "expect(s)", "intend(s)", "plan(s)", "target(s)", "project(s)", "predict(s)", "believe(s)", "may", "will", "would", "could", "should", "seek(s)", "estimate(s)" and similar expressions are intended to identify such forward-looking statements. These statements are based on management's current expectations and beliefs and are subject to a number of risks and uncertainties that could lead to actual results differing materially from those projected, forecasted or expected. Although we believe that the assumptions underlying the forward-looking statements are reasonable, we can give no assurance that our expectations will be attained. Factors which could have a material adverse effect on our operations and future prospects or which could cause actual results to differ materially from our expectations include, but are not limited to, the risk that we may not be able to satisfy the conditions and successfully complete the Chartwell management agreement restructuring; the risk that we may not be able to successfully integrate the new Horizon Bay communities into our operations; our determination from time to time to purchase any shares under the repurchase program; our ability to fund any repurchases; the risk associated with the current global economic crisis and its impact upon capital markets and liquidity; our inability to extend (or refinance) debt (including our credit and letter of credit facilities) as it matures; the risk that we may not be able to satisfy the conditions precedent to exercising the extension options associated with certain of our debt agreements; events which adversely affect the ability of seniors to afford our monthly resident fees or entrance fees; the conditions of housing markets in certain geographic areas; our ability to generate sufficient cash flow to cover required interest and long-term operating lease payments; the effect of our indebtedness and long-term operating leases on our liquidity; the risk of loss of property pursuant to our mortgage debt and long-term lease obligations; the possibilities that changes in the capital markets, including changes in interest rates and/or credit spreads, or other factors could make financing more expensive or unavailable to us; changes in governmental reimbursement programs; our ability to effectively manage our growth; our ability to maintain consistent quality control; delays in obtaining regulatory approvals; the risk that we may not be able to expand, redevelop and reposition our communities in accordance with our plans; our ability to complete acquisitions and integrate them into our operations; competition for the acquisition of assets; our ability to obtain additional capital on terms acceptable to us; a decrease in the overall demand for senior housing; our vulnerability to economic downturns; acts of nature in certain geographic areas; terminations of our resident agreements and vacancies in the living spaces we lease; early terminations or non-renewal of management agreements; increased competition for skilled personnel; increased union activity; departure of our key officers; increases in market interest rates; environmental


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contamination at any of our facilities; failure to comply with existing environmental laws; an adverse determination or resolution of complaints filed against us; the cost and difficulty of complying with increasing and evolving regulation; and other risks detailed from time to time in our filings with the Securities and Exchange Commission, press releases and other communications, including those set forth under "Risk Factors" included in our Annual Report on Form 10-K for the year ended December 31, 2011 and in this Quarterly Report.
Such forward-looking statements speak only as of the date of this Quarterly Report. We expressly disclaim any obligation to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in our expectations with regard thereto or change in events, conditions or circumstances on which any statement is based.

Executive Overview

Our primary long-term growth objectives are to grow our revenues, Adjusted EBITDA, Cash From Facility Operations and Facility Operating Income primarily through a combination of: (i) organic growth in our core business, including occupancy growth, increases in the average monthly revenue per unit, expense control and the realization of economies of scale; (ii) continued expansion of our ancillary services programs (including therapy, home health and hospice services); (iii) expansion, redevelopment and repositioning of existing communities; and (iv) acquisition and consolidation of asset portfolios and other senior living companies.

The tables below present a summary of our operating results and certain other financial metrics for the three and nine months ended September 30, 2012 and 2011 and the amount and percentage of increase or decrease of each applicable item (dollars in millions).

                                  Three Months Ended              Increase
                                     September 30,               (Decrease)
                                  2012           2011       Amount       Percent
Total revenues                  $   696.5      $  615.7     $  80.8          13.1 %
Net loss                        $   (12.0 )    $   (7.0 )   $   5.0          70.7 %
Adjusted EBITDA                 $   106.8      $   99.8     $   7.1           7.1 %
Cash From Facility Operations   $    61.5      $   60.1     $   1.4           2.3 %
Facility Operating Income       $   187.6      $  187.2     $   0.4           0.2 %




                                   Nine Months Ended               Increase
                                     September 30,                (Decrease)
                                  2012           2011        Amount      Percent
Total revenues                  $ 2,070.3     $  1,785.9     $ 284.4         15.9 %
Net loss                        $   (41.2 )   $    (53.3 )   $ (12.1 )      (22.8 %)
Adjusted EBITDA                 $   307.9     $    306.3     $   1.6          0.5 %
Cash From Facility Operations   $   177.5     $    183.2     $  (5.6 )       (3.1 %)
Facility Operating Income       $   571.5     $    569.6     $   1.9          0.3 %

Adjusted EBITDA and Facility Operating Income are non-GAAP financial measures we use in evaluating our operating performance. Cash From Facility Operations is a non-GAAP financial measure we use in evaluating our liquidity. See "Non-GAAP Financial Measures" below for an explanation of how we define each of these measures,
a detailed description of why we believe such measures are useful and the limitations of each measure, a reconciliation of net loss to each of Adjusted EBITDA and Facility Operating Income and a reconciliation of net cash provided by operating activities to Cash From Facility Operations.

During the nine months ended September 30, 2012, we experienced an increase in our total revenues, primarily due to the addition of leased and managed communities from the Horizon Bay and HCP transactions in the third quarter of 2011, along with increases in occupancy and average monthly revenue per unit, including an increase in our ancillary services revenue. Total revenues for the nine months ended September 30, 2012 increased to $2.1 billion, an increase of $284.4 million, or 15.9%, over our total revenues for the nine months ended September 30, 2011. Resident and management fee revenue for the nine months ended September 30, 2012 increased $114.1 million, or 6.7%, from the nine months ended September 30, 2011. Revenue from reimbursed costs incurred on behalf of


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managed communities increased $170.3 million, or 234.6%, during the nine months ended September 30, 2012, primarily due to the management agreements entered into or acquired in conjunction with the Horizon Bay and HCP transactions during the third quarter of 2011. In connection with these transactions, we added to our portfolio 12 leased communities and 78 managed communities (after giving effect to our subsequent acquisition of one of the managed communities in the fourth quarter of 2011).

The increase in resident fees during the nine months ended September 30, 2012 was primarily a result of an increase in the average monthly revenue per unit compared to the prior year period, including growing revenues from our ancillary services programs, an increase in occupancy and a 2.9% increase in consolidated units operated. Our weighted average occupancy rate for the nine months ended September 30, 2012 and 2011 was 87.8% and 87.1%, respectively. Although we have made significant progress in many areas of our business, the difficult operating environment has continued to result in occupancy rates that are lower than historical levels and diminished growth in the rates we charge our residents.

Beginning October 1, 2011, we were impacted by a reduction in the reimbursement rates for Medicare skilled nursing patients and home health patients, as well as a negative change in the allowable method for delivering therapy services to skilled nursing patients (resulting in increased therapy labor expense). The cumulative negative financial impact of these changes increased our expense and decreased our revenue, Facility Operating Income, Adjusted EBITDA and Cash From Facility Operations for the nine months ended September 30, 2012.

During the three months ended September 30, 2012, our Adjusted EBITDA, Cash From Facility Operations and Facility Operating Income increased by 7.1%, 2.3% and 0.2%, respectively, when compared to the three months ended September 30, 2011.
During the nine months ended September 30, 2012, our Adjusted EBITDA and Facility Operating Income increased by 0.5% and 0.3%, respectively, and Cash From Facility Operations decreased by 3.1%, when compared to the nine months ended September 30, 2011.

During the second quarter of 2012, we changed the composition of our operating segments from four reportable segments to six reportable segments (Retirement Centers, Assisted Living, CCRCs - Rental, CCRCs - Entry Fee, ISC and Management Services) (Note 15). This change was made to align operating segments with the basis that the chief operating decision maker uses to review financial information to make operating decisions, assess performance, develop strategy and allocate capital resources. All prior period disclosures below have been recast to present results on a comparable basis.

During the nine months ended September 30, 2012, we acquired the underlying real estate associated with nine Retirement Center communities that were previously leased for an aggregate purchase price of $121.3 million. During the period, we also acquired three home health agencies and an existing skilled nursing facility for an aggregate purchase price of approximately $6.6 million.

During the nine months ended September 30, 2012, we continued to expand our ancillary services offerings. As of September 30, 2012, we offered therapy services to approximately 50,600 of our units and home health services to over 45,200 of our units (approximately 38,000 and 32,700 of these units, respectively, are in our consolidated portfolio). We expect to continue to expand our ancillary services programs to additional units and to open or acquire additional home health agencies.

We believe that the recent challenge in the housing market, credit crisis and general economic uncertainty have caused some potential customers (or their adult children) to delay or reconsider moving into our communities, resulting in a decrease in occupancy rates and occupancy levels when compared to historical levels. We remain cautious about the economy and the adverse credit and financial markets and their effect on our customers and our business. In addition, we continue to experience volatility in the entrance fee portion of our business. The timing of entrance fee sales is subject to a number of different factors (including the ability of potential customers to sell their existing homes) and is also inherently subject to variability (positively or negatively) when measured over the short-term. These factors also impact our potential independent living customers to a significant extent. We expect occupancy and entrance fee sales to normalize over the longer term.


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Consolidated Results of Operations

Three Months Ended September 30, 2012 and 2011

The following table sets forth, for the periods indicated, statement of operations items and the amount and percentage of increase or decrease of these items. The results of operations for any particular period are not necessarily indicative of results for any future period. The following data should be read in conjunction with our condensed consolidated financial statements and the related notes, which are included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

(dollars in thousands, except average monthly revenue per unit)

                                       Three Months Ended
                                          September 30,
                                                                     Increase         % Increase
                                      2012            2011          (Decrease)        (Decrease)

Statement of Operations Data:
Revenue
Resident fees
Retirement Centers                 $   126,401     $   119,548     $      6,853               5.7 %
Assisted Living                        254,179         241,037           13,142               5.5 %
CCRCs - Rental                          96,681          91,628            5,053               5.5 %
CCRCs - Entry Fee                       71,750          71,571              179               0.3 %
ISC                                     56,856          51,375            5,481              10.7 %
Total resident fees                    605,867         575,159           30,708               5.3 %
Management services(1)                  90,615          40,569           50,046             123.4 %
Total revenue                          696,482         615,728           80,754              13.1 %
Expense
Facility operating expense
Retirement Centers                      75,679          69,601            6,078               8.7 %
Assisted Living                        163,017         158,933            4,084               2.6 %
CCRCs - Rental                          71,581          62,671            8,910              14.2 %
CCRCs - Entry Fee                       56,249          53,232            3,017               5.7 %
ISC                                     44,941          36,977            7,964              21.5 %
Total facility operating expense       411,467         381,414           30,053               7.9 %
General and administrative
expense                                 43,158          38,711            4,447              11.5 %
Facility lease expense                  71,167          68,314            2,853               4.2 %
Depreciation and amortization           62,876          64,071           (1,195 )            (1.9 %)
Gain on acquisition                         --          (3,520 )         (3,520 )          (100.0 %)
Costs incurred on behalf of
managed communities                     83,208          37,233           45,975             123.5 %
Total operating expense                671,876         586,223           85,653              14.6 %
Income from operations                  24,606          29,505           (4,899 )           (16.6 %)
Interest income                            676           1,171             (495 )           (42.3 %)
Interest expense
Debt                                   (32,262 )       (30,433 )          1,829               6.0 %
Amortization of deferred
financing costs and debt
discount                                (4,543 )        (4,310 )            233               5.4 %
Change in fair value of
derivatives and amortization               140          (1,508 )         (1,648 )          (109.3 %)
Loss on extinguishment of debt              --            (715 )           (715 )          (100.0 %)
Equity in loss of unconsolidated
ventures                                  (249 )          (117 )            132             112.8 %
Other non-operating income                                                                  531.0 %
(loss)                                     500            (116 )            616


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                                        Three Months Ended
                                          September 30,
                                                                      Increase         % Increase
                                        2012            2011         (Decrease)        (Decrease)
Loss before income taxes                (11,132 )        (6,523 )          4,609              70.7 %
Provision for income taxes                 (878 )          (513 )            365              71.2 %
Net loss                           $    (12,010 )   $    (7,036 )   $      4,974              70.7 %

Selected Operating and Other
Data:
Total number of communities
(period end)                                648             647                1               0.2 %
Total units operated(2)
Period end                               66,110          66,178              (68 )            (0.1 %)
Weighted average                         66,090          55,440           10,650              19.2 %
Owned/leased communities
units(2)
Period end                               48,013          47,752              261               0.5 %
Weighted average                         48,009          46,791            1,218               2.6 %
Owned/leased communities
occupancy rate (weighted
average)                                   88.0 %          87.4 %            0.6 %             0.7 %
Senior Housing average monthly
revenue per unit (3)               $      4,279     $     4,214     $         65               1.5 %

Selected Segment Operating and
Other Data:
Retirement Centers
Number of communities (period
end)                                         76              76                -                 -
Total units (2)
Period end                               14,438          14,464              (26 )            (0.2 %)
Weighted average                         14,445          14,131              314               2.2 %
Occupancy rate (weighted
average)                                   89.1 %          88.4 %            0.7 %             0.8 %
Senior Housing average monthly
revenue per unit (3)               $      3,275     $     3,186     $         89               2.8 %
Assisted Living
Number of communities (period
end)                                        434             433                1               0.2 %
Total units (2)
Period end                               21,655          21,524              131               0.6 %
Weighted average                         21,652          21,265              387               1.8 %
Occupancy rate (weighted
average)                                   89.1 %          88.4 %            0.7 %             0.8 %
Senior Housing average monthly
revenue per unit (3)               $      4,393     $     4,274     $        119               2.8 %
CCRCs - Rental
Number of communities (period
end)                                         27              26                1               3.8 %
Total units (2)
Period end                                6,691           6,607               84               1.3 %
Weighted average                          6,691           6,243              448               7.2 %
Occupancy rate (weighted
average)                                   85.8 %          86.3 %           (0.5 %)           (0.6 %)
Senior Housing average monthly
revenue per unit (3)               $      5,619     $     5,672     $        (53 )            (0.9 %)
CCRCs - Entry Fee
Number of communities (period
end)                                         14              14                -                 -
Total units (2)
Period end                                5,229           5,157               72               1.4 %
Weighted average                          5,221           5,152               69               1.3 %
Occupancy rate (weighted
average)                                   83.4 %          82.2 %            1.2 %             1.5 %
Senior Housing average monthly
revenue per unit (3)               $      4,975     $     5,124     $       (149 )            (2.9 %)


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                                         Three Months Ended
                                            September 30,
                                                                       Increase        % Increase
                                        2012            2011          (Decrease)       (Decrease)
Other Entry Fee Data
Non-refundable entrance fees sales   $    12,926     $    10,815     $      2,111             19.5 %
Refundable entrance fees sales(4)         12,206           7,204            5,002             69.4 %
Total entrance fee receipts               25,132          18,019            7,113             39.5 %
Refunds                                   (6,024 )        (5,475 )            549             10.0 %
Net entrance fees(5)                 $    19,108     $    12,544     $      6,564             52.3 %
Management Services
Number of communities (period end)            97              98               (1 )           (1.0 %)
Total units (2)
Period end                                18,097          18,426             (329 )           (1.8 %)
Weighted average                          18,081           8,649            9,432            109.1 %
Occupancy rate (weighted average)           84.3 %          84.3 %            0.0 %            0.0 %

ISC
Brookdale units served
Outpatient Therapy (total)                50,556          41,783            8,773             21.0 %
Outpatient Therapy (consolidated)         38,016          35,761            2,255              6.3 %
Home Health (total)                       45,247          31,322           13,925             44.5 %
Home Health (consolidated)                32,650          28,347            4,303             15.2 %
Outpatient Therapy treatment codes       939,241         848,205           91,036             10.7 %
Home Health average census                 3,651           3,379              272              8.0 %


__________


(1) Management services segment revenue includes reimbursements for which we are the primary obligor of costs incurred on behalf of managed communities.

(2) Period end units operated excludes equity homes. Weighted average units operated represents the average units operated during the period, excluding equity homes.

(3) Senior Housing average monthly revenue per unit represents the average of the total monthly resident fee revenues, excluding amortization of entrance fees and ISC segment revenue, divided by average occupied units.

(4) Refundable entrance fee sales for the three months ended September 30, 2012 and 2011 include amounts received from residents participating in the MyChoice program, which allows new and existing residents the option to pay additional refundable entrance fee amounts in return for a reduced monthly service fee. MyChoice amounts received from residents totaled $2.4 million and $2.3 million for the three months ended September 30, 2012 and 2011, respectively.

(5) Includes $1.6 million and $2.3 million of first generation net entrance fee receipts (which represent initial entrance fees received from the sale of units, net of first generation entrance fee refunds not replaced by second generation entrance fee receipts, at a recently opened entrance fee CCRC) during the three months ended September 30, 2012 and 2011, respectively.

As of September 30, 2012, our total operations included 648 communities with a capacity of 66,948 units, including equity homes.

Resident Fees

Resident fees increased over the prior year period primarily as a result of an increase in the average monthly revenue per unit compared to the prior year period, including growing revenues from our ancillary services programs, an


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increase in occupancy and a 2.6% increase in consolidated units operated.
During the current period, revenues grew 2.0% at the 535 communities we operated during both periods with a 1.3% increase in the average monthly revenue per unit (excluding amortization of entrance fees in both instances). Occupancy increased 0.7% in these communities period over period.

Retirement Centers revenue increased $6.9 million, or 5.7%, primarily due to the . . .

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