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BKD > SEC Filings for BKD > Form 10-Q on 9-Aug-2013All Recent SEC Filings

Show all filings for BROOKDALE SENIOR LIVING INC. | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for BROOKDALE SENIOR LIVING INC.


9-Aug-2013

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 Retirement Residences ("Chartwell"); statements relating to our operational initiatives and our expectations regarding their effect on our results; our expectations regarding the economy, the senior living industry, occupancy, revenue, cash flow, operating income, 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, returns on invested capital and taxes; our expectations regarding returns to shareholders and our growth prospects; our expectations concerning the future performance of recently acquired communities and the effects of acquisitions on our financial results; our expectations regarding the consummation of the Chartwell portfolio acquisition (including the anticipated timing thereof) and the effect of the acquisition on our financial results; 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 and leverage; 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, renovate, 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 regarding our sales, marketing and branding initiatives and their impact on our results; 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 and/or the Chartwell portfolio acquisition; our ability to assume and obtain the mortgage debt financing for the Chartwell portfolio acquisition; the risk associated with the current global economic situation and its impact upon capital markets and liquidity; changes in governmental reimbursement programs; 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; our determination from time to time to purchase any shares under the repurchase program; our ability to fund any repurchases; 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


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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 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, 2012 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 expense control and the realization of economies of scale; (ii) expansion, redevelopment and repositioning of existing communities; (iii) acquisition and consolidation of asset portfolios and other senior living companies; and (iv) continued expansion of our ancillary services programs (including therapy, home health and hospice services).

The tables below present a summary of our operating results and certain other financial metrics for the three and six months ended June 30, 2013 and 2012 and the amount and percentage of increase or decrease of each applicable item (dollars in millions).

                                  Three Months Ended              Increase
                                       June 30,                  (Decrease)
                                   2013          2012       Amount      Percent
Total revenues                  $    716.5      $ 690.5     $  26.0          3.7 %
Net loss                        $     (5.2 )    $ (19.0 )   $ (13.8 )      (72.7 %)
Adjusted EBITDA                 $    113.8      $ 104.5     $   9.3          8.9 %
Cash From Facility Operations   $     71.2      $  61.5     $   9.7         15.7 %
Facility Operating Income       $    197.9      $ 192.2     $   5.7          2.9 %



                                   Six Months Ended               Increase
                                       June 30,                  (Decrease)
                                  2013          2012        Amount      Percent
Total revenues                  $ 1,428.7     $ 1,373.2     $  55.6          4.0 %
Net loss                        $    (1.6 )   $   (29.6 )   $ (28.0 )      (94.4 %)
Adjusted EBITDA                 $   224.1     $   201.1     $  23.0         11.4 %
Cash From Facility Operations   $   139.0     $   116.1     $  22.9         19.8 %
Facility Operating Income       $   402.1     $   383.9     $  18.2          4.7 %

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 income (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 six months ended June 30, 2013, we experienced an increase in our total revenues, primarily due to increases in occupancy and average monthly revenue per unit, including an increase in our ancillary services revenue.
Total revenues for the six months ended June 30, 2013 increased to $1.4 billion, an increase of $55.6


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million, or 4.0%, over our total revenues for the six months ended June 30, 2012. Resident fees for the six months ended June 30, 2013 increased $46.7 million, or 3.9%, from the prior year period. Management fees increased $0.4 million, or 2.7%, from the prior year period, and reimbursed costs incurred on behalf of managed communities increased $8.4 million, or 5.3%.

The increase in resident fees during the six months ended June 30, 2013 was primarily a result of a 2.7% increase in senior housing average monthly revenue per unit compared to the prior year period, a 70 basis points increase in average occupancy and an increase in revenues from our ancillary services programs. Our weighted average occupancy rate for the six months ended June 30, 2013 and 2012 was 88.4% and 87.7%, respectively. The increase in our average occupancy rate was a result of improving fundamentals, execution by our field organization and sales and marketing team and the benefit of the capital we have invested and continue to spend on our communities.

During the six months ended June 30, 2013, we also made progress in controlling our cost growth. Facility operating expenses for the six months ended June 30, 2013 were $829.0 million, an increase of $26.7 million, or 3.3%, as compared to the six months ended June 30, 2012.

Net loss for the six months ended June 30, 2013 was $1.6 million, or $(0.01) per basic and diluted common share, compared to a net loss of $29.6 million, or $(0.24) per basic and diluted common share, for the six months ended June 30, 2012.

During the six months ended June 30, 2013, our Adjusted EBITDA, Cash From Facility Operations and Facility Operating Income increased by 11.4%, 19.8% and 4.7%, respectively, when compared to the six months ended June 30, 2012.

During the first six months of 2013, we continued to expand our ancillary services offerings. As of June 30, 2013, we offered therapy services to approximately 52,000 of our units and home health services to approximately 46,000 of our units (approximately 38,000 and 33,000 of these units, respectively, are in our consolidated portfolio). As of that date, we also had nine hospice agencies in operation. We expect to continue to expand our ancillary services programs to additional units and to open or acquire additional home health agencies. We also expect to expand our ancillary services programs by opening additional hospice agencies.

During the six months ended June 30, 2013, we entered into an agreement to acquire seven senior living communities from Chartwell for an aggregate purchase price of $80.9 million, plus customary transaction expenses. We have been managing six of the communities since our acquisition of Horizon Bay in September 2011. The consummation of the transaction is subject to the satisfaction of certain closing conditions and contingencies, including the receipt of certain lender and regulatory approvals and consents. The transaction is expected to close during the third quarter of 2013.

During the first half of 2013, we also experienced an increase in entrance fee sales and net entrance fees. For the six months ended June 30, 2013, total entrance fee receipts increased by $6.1 million, or 17.5%, to $40.8 million and net entrance fees increased by $2.8 million, or 13.3%, to $24.0 million.

On March 28, 2013, we entered into a second amended and restated credit agreement with General Electric Capital Corporation, as administrative agent and lender, and the other lenders from time to time parties thereto. The amended credit agreement amended and restated in its entirety our existing amended and restated credit agreement dated as of January 31, 2011, as previously amended. The amended credit agreement extended the maturity date of the facility to March 31, 2018 and decreased the interest rate payable on advances and the fee payable on the unused portion of the facility. The amended credit agreement also provides options to increase the committed amount initially from $230.0 million to $250.0 million, which we exercised on June 28, 2013, and thereafter from $250.0 million to up to $350.0 million, subject to obtaining commitments for the amount of such increase from acceptable lenders. The amended credit agreement now also permits reduction of the committed amount or termination of the facility during the last two years of the five year term without payment of a premium or penalty.


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Consolidated Results of Operations

Three Months Ended June 30, 2013 and 2012

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.

Certain prior period amounts have been reclassified to conform to the current year presentation.

(dollars in thousands, except
average monthly revenue per            Three Months Ended
unit)                                       June 30,
                                                                     Increase        % Increase
                                      2013            2012          (Decrease)       (Decrease)
Statement of Operations Data:
Revenue
Resident fees
Retirement Centers                 $   130,170     $   125,813     $      4,357              3.5 %
Assisted Living                        260,497         252,399            8,098              3.2 %
CCRCs - Rental                          97,562          95,258            2,304              2.4 %
CCRCs - Entry Fee                       74,016          70,858            3,158              4.5 %
ISC                                     58,693          57,722              971              1.7 %
Total resident fees                    620,938         602,050           18,888              3.1 %
Management services(1)                  95,530          88,423            7,107              8.0 %
Total revenue                          716,468         690,473           25,995              3.8 %
Expense
Facility operating expense
Retirement Centers                      75,993          73,138            2,855              3.9 %
Assisted Living                        164,316         162,233            2,083              1.3 %
CCRCs - Rental                          71,995          68,494            3,501              5.1 %
CCRCs - Entry Fee                       56,244          55,341              903              1.6 %
ISC                                     47,479          44,309            3,170              7.2 %
Total facility operating expense       416,027         403,515           12,512              3.1 %
General and administrative              46,035          46,071              (36 )           (0.1 %)
expenses
Facility lease expense                  68,777          70,628           (1,851 )           (2.6 %)
Depreciation and amortization           67,254          63,561            3,693              5.8 %
Asset impairment                         2,154           7,246           (5,092 )          (70.3 %)
Costs incurred on behalf of
managed communities                     87,786          80,924            6,862              8.5 %
Total operating expense                688,033         671,945           16,088              2.4 %
Income from operations                  28,435          18,528            9,907             53.5 %
Interest income                            252             692             (440 )          (63.6 %)
Interest expense
Debt                                   (29,843 )       (32,431 )         (2,588 )           (8.0 %)
Amortization of deferred
financing costs and debt
discounts                               (4,348 )        (4,586 )           (238 )           (5.2 %)
Change in fair value of                  1,836            (278 )          2,114            760.4 %
derivatives and amortization
Loss on extinguishment of debt            (893 )                           893            100.0 %
Equity in earnings (loss) of               445             (61 )            506            829.5 %
unconsolidated ventures
Other non-operating income                  80               3               77               NM
Loss before income taxes                (4,036 )       (18,133 )        (14,097 )          (77.7 %)
Provision for income taxes              (1,164 )          (882 )            282             32.0 %
Net loss                           $    (5,200 )   $   (19,015 )   $    (13,815 )          (72.7 %)


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                                        Three Months Ended
                                             June 30,
                                                                      Increase        % Increase
                                       2013            2012          (Decrease)       (Decrease)
Selected Operating and Other
Data:
Total number of communities
(period end)                                650             647                3              0.5 %
Total units operated(2)
Period end                               66,134          66,032              102              0.2 %
Weighted average                         66,217          66,090              127              0.2 %
Owned/leased communities
units(2)
Period end                               47,946          48,004              (58 )           (0.1 %)
Weighted average                         47,907          47,946              (39 )           (0.1 %)
 Owned/leased communities
occupancy rate (weighted
average)                                   88.3 %          87.7 %            0.6 %            0.7 %
Senior Housing average monthly
revenue per unit(3)                $      4,373     $     4,266     $        107              2.5 %

Selected Segment Operating and
Other Data:
Retirement Centers
Number of communities (period
end)                                         76              76                -                -
Total units(2)
Period end                               14,430          14,451              (21 )           (0.1 %)
Weighted average                         14,429          14,451              (22 )           (0.2 %)
Occupancy rate (weighted
average)                                   89.4 %          88.8 %            0.6 %            0.7 %
Senior Housing average monthly
revenue per unit(3)                $      3,362     $     3,268     $         94              2.9 %
Assisted Living
Number of communities (period
end)                                        432             434               (2 )           (0.5 %)
Total units(2)
Period end                               21,524          21,653             (129 )           (0.6 %)
Weighted average                         21,499          21,637             (138 )           (0.6 %)
Occupancy rate (weighted
average)                                   89.4 %          88.6 %            0.8 %            0.9 %
Senior Housing average monthly
revenue per unit(3)                $      4,519     $     4,390     $        129              2.9 %
CCRCs - Rental
Number of communities (period
end)                                         27              27                -                -
Total units(2)
Period end                                6,687           6,693               (6 )           (0.1 %)
Weighted average                          6,684           6,659               25              0.4 %
Occupancy rate (weighted
average)                                   86.2 %          85.8 %            0.4 %            0.5 %
Senior Housing average monthly
revenue per unit(3)                $      5,649     $     5,561     $         88              1.6 %
CCRCs - Entry Fee
Number of communities (period
end)                                         14              14                -                -
Total units(2)
Period end                                5,305           5,207               98              1.9 %
Weighted average                          5,295           5,199               96              1.8 %
Occupancy rate (weighted
average)                                   83.8 %          83.4 %            0.4 %            0.5 %
Senior Housing average monthly
revenue per unit(3)                $      5,025     $     4,963     $         62              1.2 %

    Other Entry Fee Data
Non-refundable entrance fees
sales                              $     12,124     $    10,377     $      1,747             16.8 %
Refundable entrance fees
sales(4)                                 11,754           9,317            2,437             26.2 %
Total entrance fee receipts              23,878          19,694            4,184             21.2 %


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                                         Three Months Ended
                                              June 30,
                                                                       Increase        % Increase
                                        2013            2012          (Decrease)       (Decrease)
Refunds                                   (7,456 )        (5,429 )          2,027             37.3 %
Net entrance fees                    $    16,422     $    14,265     $      2,157             15.1 %
Management Services
Number of communities (period end)           101              96                5              5.2 %
Total units(2)
Period end                                18,188          18,028              160              0.9 %
Weighted average                          18,310          18,144              166              0.9 %
Occupancy rate (weighted average)           84.9 %          84.0 %            0.9 %            1.1 %

ISC
Outpatient Therapy treatment codes       840,076         957,364         (117,288 )          (12.3 %)
Home Health average census                 4,366           3,554              812             22.8 %


__________


(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 June 30, 2013 and 2012 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 $4.0 million and $3.6 million for the three months ended June 30, 2013 and 2012, respectively.

As of June 30, 2013, our total operations included 650 communities with a capacity to serve 66,902 residents.

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 an increase in revenue from our ancillary services programs, and an increase in occupancy. During the current period, revenues grew 3.1% at the 541 communities we operated during both periods with a 2.2% increase in the average monthly revenue per unit (excluding amortization of entrance fees in both instances). Occupancy increased 0.8% in these communities period over period.

Retirement Centers revenue increased $4.4 million, or 3.5%, primarily due to increases in average monthly revenue per unit and occupancy at the communities we operated during both periods.

Assisted Living revenue increased $8.1 million, or 3.2%, primarily due to increases in average monthly revenue per unit and occupancy at the communities we operated during both periods. The increase was partially offset by the impact of the disposition of three communities subsequent to the prior year period.

CCRCs - Rental revenue increased $2.3 million, or 2.4%, primarily due to increases in average monthly revenue per unit and occupancy at the communities we operated during both periods.

CCRCs - Entry Fee revenue increased $3.2 million, or 4.5%, primarily due to increases in the number of units operated and average monthly revenue per unit.


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ISC revenue increased $0.9 million, or 1.7%, primarily due to the roll-out of our ancillary services programs to additional units subsequent to the prior year period. The increase was partially offset by a decrease in therapy service volume.

Management Services

Management services revenue, including reimbursed costs incurred on behalf of managed communities, increased $7.1 million, or 8.0%, primarily due to . . .

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