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BKD > SEC Filings for BKD > Form 10-Q on 8-Nov-2013All Recent SEC Filings

Show all filings for BROOKDALE SENIOR LIVING INC.

Form 10-Q for BROOKDALE SENIOR LIVING INC.


8-Nov-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, development and construction 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 (including the Chartwell portfolio 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; 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 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


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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 nine months ended September 30, 2013 and 2012 and the amount and percentage of increase or decrease of each applicable item (dollars in millions).

                                  Three Months Ended              Increase
                                     September 30,               (Decrease)
                                   2013          2012       Amount      Percent
Total revenues                  $    729.0      $ 696.1     $  32.9          4.7 %
Net loss                        $     (1.0 )    $ (12.2 )   $ (11.2 )      (92.1 %)
Adjusted EBITDA                 $    114.1      $ 106.8     $   7.3          6.8 %
Cash From Facility Operations   $     70.6      $  61.5     $   9.1         14.8 %
Facility Operating Income       $    203.6      $ 187.6     $  16.0          8.5 %



                                   Nine Months Ended              Increase
                                     September 30,               (Decrease)
                                  2013          2012        Amount      Percent
Total revenues                  $ 2,157.7     $ 2,069.3     $  88.4          4.3 %
Net loss                        $    (2.6 )   $   (41.8 )   $ (39.2 )      (93.8 %)
Adjusted EBITDA                 $   338.2     $   307.9     $  30.3          9.8 %
Cash From Facility Operations   $   209.6     $   177.5     $  32.1         18.0 %
Facility Operating Income       $   605.7     $   571.5     $  34.2          6.0 %

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 nine months ended September 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 nine months ended September 30, 2013 increased to $2.2 billion, an increase of $88.4 million, or 4.3%, over our total revenues for the nine months ended September 30, 2012. Resident fees for the nine months ended September 30, 2013 increased $72.3 million, or 4.0%, from the prior year period. Management


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fees increased $0.6 million, or 2.8%, from the prior year period, and reimbursed costs incurred on behalf of managed communities increased $15.5 million, or 6.4%.

The increase in resident fees during the nine months ended September 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, an 80 basis points increase in average occupancy and an increase in revenues from our ancillary services programs. Our weighted average occupancy rate for the nine months ended September 30, 2013 and 2012 was 88.6% and 87.8%, 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 nine months ended September 30, 2013, we also made progress in controlling our cost growth. Facility operating expenses for the nine months ended September 30, 2013 were $1.2 billion, an increase of $35.9 million, or 3.0%, as compared to the nine months ended September 30, 2012.

Net loss for the nine months ended September 30, 2013 was $2.6 million, or $(0.02) per basic and diluted common share, compared to a net loss of $41.8 million, or $(0.34) per basic and diluted common share, for the nine months ended September 30, 2012.

During the nine months ended September 30, 2013, our Adjusted EBITDA, Cash From Facility Operations and Facility Operating Income increased by 9.8%, 18.0% and 6.0%, respectively, when compared to the nine months ended September 30, 2012.

During the first nine months of 2013, we continued to expand our ancillary services offerings. As of September 30, 2013, we offered therapy services to approximately 53,000 of our units and home health services to approximately 48,000 of our units (approximately 38,000 and 34,000 of these units, respectively, are in our consolidated portfolio). As of that date we also had ten 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.

Effective October 1, 2013, we acquired seven communities from Chartwell for an aggregate purchase price of $80.9 million. We financed the transaction with $60.8 million of first mortgage financing (substantially through the assumption of existing debt), with the balance of the purchase price paid from cash on hand. We had been managing six of the communities since the acquisition of Horizon Bay in September 2011.

Consolidated Results of Operations

Three Months Ended September 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.


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(dollars in thousands, except           Three Months Ended
average monthly revenue per unit)          September 30,
                                                                     Increase        % Increase
                                        2013           2012         (Decrease)       (Decrease)
Statement of Operations Data:
Revenue
Resident fees
Retirement Centers                   $   133,272     $ 126,401     $      6,871              5.4 %
Assisted Living                          262,524       254,179            8,345              3.3 %
CCRCs - Rental                           100,076        96,681            3,395              3.5 %
CCRCs - Entry Fee                         74,110        71,413            2,697              3.8 %
ISC                                       61,162        56,856            4,306              7.6 %
Total resident fees                      631,144       605,530           25,614              4.2 %
Management services(1)                    97,855        90,615            7,240              8.0 %
Total revenue                            728,999       696,145           32,854              4.7 %
Expense
Facility operating expense
Retirement Centers                        76,452        75,679              773              1.0 %
Assisted Living                          165,774       163,017            2,757              1.7 %
CCRCs - Rental                            73,063        71,581            1,482              2.1 %
CCRCs - Entry Fee                         55,892        56,249             (357 )           (0.6 %)
ISC                                       49,398        44,941            4,457              9.9 %
Total facility operating expense         420,579       411,467            9,112              2.2 %
General and administrative
expenses                                  45,824        43,158            2,666              6.2 %
Facility lease expense                    69,232        71,167           (1,935 )           (2.7 %)
Depreciation and amortization             68,644        62,876            5,768              9.2 %
Asset impairment                             504                           504            100.0 %
Costs incurred on behalf of
managed communities                       90,233        83,208            7,025              8.4 %
Total operating expense                  695,016       671,876           23,140              3.4 %
Income from operations                    33,983        24,269            9,714             40.0 %
Interest income                              472           676             (204 )          (30.2 %)
Interest expense
Debt                                     (29,642 )     (32,262 )         (2,620 )           (8.1 %)
Amortization of deferred financing
costs and debt discounts                  (4,100 )      (4,543 )           (443 )           (9.8 %)
Change in fair value of
derivatives and amortization              (1,377 )         140            1,517               NM
Loss on extinguishment of debt               (53 )                          53            100.0 %
Equity in earnings (loss) of
unconsolidated ventures                      431          (249 )            680            273.1 %
Other non-operating income                   279           500             (221 )          (44.2 %)
Loss before income taxes                      (7 )     (11,469 )        (11,462 )          (99.9 %)
Provision for income taxes                  (960 )        (747 )            213             28.5 %
Net loss                             $      (967 )   $ (12,216 )   $    (11,249 )          (92.1 %)


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                                        Three Months Ended
                                          September 30,
                                                                      Increase        % Increase
                                       2013            2012          (Decrease)       (Decrease)
Selected Operating and Other
Data:
Total number of communities
(period end)                                651             648                3              0.5 %
Total units operated(2)
Period end                               66,311          66,110              201              0.3 %
Weighted average                         66,243          66,090              153              0.2 %
Owned/leased communities
units(2)
Period end                               47,983          48,013              (30 )           (0.1 %)
Weighted average                         47,952          48,009              (57 )           (0.1 %)
 Owned/leased communities
occupancy rate (weighted
average)                                   89.0 %          88.0 %            1.0 %            1.1 %
Senior Housing average monthly
revenue per unit(3)                $      4,397     $     4,279     $        118              2.8 %

Selected Segment Operating and
Other Data:
Retirement Centers
Number of communities (period
end)                                         76              76                -                -
Total units(2)
Period end                               14,453          14,438               15              0.1 %
Weighted average                         14,444          14,445               (1 )              -
Occupancy rate (weighted
average)                                   90.2 %          89.1 %            1.1 %            1.2 %
Senior Housing average monthly
revenue per unit(3)                $      3,408     $     3,275     $        133              4.1 %
Assisted Living
Number of communities (period
end)                                        432             434               (2 )           (0.5 %)
Total units(2)
Period end                               21,519          21,655             (136 )           (0.6 %)
Weighted average                         21,513          21,652             (139 )           (0.6 %)
Occupancy rate (weighted
average)                                   90.0 %          89.1 %            0.9 %            1.0 %
Senior Housing average monthly
revenue per unit(3)                $      4,518     $     4,393     $        125              2.8 %
CCRCs - Rental
Number of communities (period
end)                                         27              27                -                -
Total units(2)
Period end                                6,687           6,691               (4 )           (0.1 %)
Weighted average                          6,687           6,691               (4 )           (0.1 %)
Occupancy rate (weighted
average)                                   86.7 %          85.8 %            0.9 %            1.0 %
Senior Housing average monthly
revenue per unit(3)                $      5,759     $     5,619     $        140              2.5 %
CCRCs - Entry Fee
Number of communities (period
end)                                         14              14                -                -
Total units(2)
Period end                                5,324           5,229               95              1.8 %
Weighted average                          5,308           5,221               87              1.7 %
Occupancy rate (weighted
average)                                   84.1 %          83.4 %            0.7 %            0.8 %
Senior Housing average monthly
revenue per unit(3)                $      4,994     $     4,975     $         19              0.4 %

    Other Entry Fee Data
Non-refundable entrance fees
sales                              $      9,223     $    12,926     $     (3,703 )          (28.6 %)
Refundable entrance fees
sales(4)                                  9,875          12,206           (2,331 )          (19.1 %)
Total entrance fee receipts              19,098          25,132           (6,034 )          (24.0 %)


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                                         Three Months Ended
                                            September 30,
                                                                       Increase        % Increase
                                        2013            2012          (Decrease)       (Decrease)
Refunds                                   (7,728 )        (6,024 )          1,704             28.3 %
Net entrance fees                    $    11,370     $    19,108     $     (7,738 )          (40.5 %)
Management Services
Number of communities (period end)           102              97                5              5.2 %
Total units(2)
Period end                                18,328          18,097              231              1.3 %
Weighted average                          18,291          18,081              210              1.2 %
Occupancy rate (weighted average)           85.7 %          84.3 %            1.4 %            1.7 %

ISC
Outpatient Therapy treatment codes       818,758         939,241         (120,483 )          (12.8 %)
Home Health average census                 4,574           3,651              923             25.3 %


__________


(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, 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 $3.2 million and $2.4 million for the three months ended September 30, 2013 and 2012, respectively.

As of September 30, 2013, our total operations included 651 communities with a capacity to serve 67,069 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 3.8% at the 541 communities we operated during both periods with a 2.5% increase in the average monthly revenue per unit (excluding amortization of entrance fees in both instances). Occupancy increased 1.1% in these communities period over period.

Retirement Centers revenue increased $6.9 million, or 5.4%, primarily due to increases in average monthly revenue per unit and occupancy at the communities we operated during both periods.

Assisted Living revenue increased $8.3 million, or 3.3%, 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 $3.4 million, or 3.5%, primarily due to increases in average monthly revenue per unit and occupancy at the communities we operated during both periods.

CCRCs - Entry Fee revenue increased $2.7 million, or 3.8%, primarily due to an increase in the number of units operated and an increase in occupancy at the communities we operated during both periods.


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ISC revenue increased $4.3 million, or 7.6%, 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 and by the impact of reimbursement changes.

Management Services

Management services revenue, including reimbursed costs incurred on behalf of managed communities, increased $7.2 million, or 8.0%, primarily due to additional costs incurred on behalf of managed communities resulting from an increase in the number of managed communities from the prior year period.

Facility Operating Expense

Facility operating expense increased over the prior-year period primarily due to increases in salaries and wages and additional expenses incurred in connection with the expansion of our ancillary services programs. These increases were partially offset by a decrease in insurance expense.

Retirement Centers operating expenses increased $0.8 million, or 1.0%, primarily due to an increase in salaries and wages due to wage rate increases and an increase in food and supplies expense due to an increase in occupancy. These increases were partially offset by a decrease in insurance expense.

Assisted Living operating expenses increased $2.8 million, or 1.7%, primarily due to an increase in salaries and wages due to wage rate increases and expenses incurred for grounds maintenance services. These increases were partially offset by a decrease in insurance expense and by the impact of the disposition of three communities subsequent to the prior year period.

CCRCs - Rental operating expenses increased $1.5 million, or 2.1%, primarily driven by an increase in salaries and wages due to wage rate increases and increased hours worked period over period, an increase in food and supplies expense due to an increase in occupancy and an increase in bad debt expense period over period. These increases were partially offset by a decrease in insurance expense.

CCRCs - Entry Fee operating expenses decreased $0.4 million, or 0.6%, primarily driven by a decrease in insurance expense.

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