Business Context and Reporting Period
Company: Brookdale Senior Living Inc.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: June 30, 2009
Business Overview: Brookdale is a leading owner and operator of senior living communities in the United States, including retirement centers, assisted living, dementia-care communities, and continuing care retirement centers (CCRCs). As of June 30, 2009, the company operated 546 communities with a capacity of 51,844 units/beds.
Key Financial Metrics
| Metric | Three Months Ended June 30, 2009 | Six Months Ended June 30, 2009 |
|---|---|---|
| Total Revenue | $500.8 million | $998.7 million |
| Net Loss | $(10.5) million | $(24.2) million |
| Income (Loss) from Operations | $16.8 million | $27.0 million |
| Adjusted EBITDA (Non-GAAP) | $92.1 million | $178.0 million |
| Cash From Facility Operations (Non-GAAP) | $52.5 million | $102.7 million |
| Net Cash Provided by Operating Activities | $44.3 million | $113.1 million |
| Cash and Cash Equivalents (End of Period) | $95.6 million | $95.6 million |
| Total Debt (Long-term + Current) | $2.45 billion | $2.45 billion |
| Weighted Average Occupancy Rate | 88.5% | 88.6% |
Material Changes vs. Prior Period
- Revenue Growth: Total revenue increased 4.7% ($22.6 million) for the quarter and 4.2% ($39.9 million) for the six months compared to the prior year periods. This was driven by a 5.2% increase in average monthly revenue per unit/bed and growth in ancillary services (therapy and home health), partially offset by a slight decline in occupancy.
- Operating Performance: The company returned to profitability from operations, reporting $16.8 million in operating income for the quarter compared to a $4.7 million operating loss in the same period in 2008. Adjusted EBITDA increased 15.7% for the quarter and 11.5% for the six months.
- Net Loss Improvement: While the company reported a net loss of $10.5 million for the quarter (worsening from a $3.5 million loss in 2008 due to derivative valuation changes), the six-month net loss improved significantly to $24.2 million from $58.6 million in the prior year.
- Expense Management: General and administrative expenses decreased 21.3% for the quarter and 14.7% for the six months, largely due to the absence of an $8.0 million litigation reserve recorded in the prior year and reduced stock-based compensation.
- Capital Structure: The company completed a public equity offering in June 2009, raising $163.9 million in net proceeds. These funds were used to repay $125.0 million of indebtedness under its credit facility, reducing the facility's maximum revolving loan commitment to $75.0 million.
Guidance, Outlook, and Risks
- Liquidity Strategy: Management has suspended quarterly cash dividends indefinitely and terminated its share repurchase program to preserve liquidity. The company expects existing cash flows, working capital, and credit facility availability to fund liquidity needs for at least the next 12 months.
- Debt Maturities: Approximately $154.5 million of debt is due within the next 12 months. The company has options to extend approximately $131.0 million of non-recourse mortgages until 2011, subject to customary conditions.
- Market Risks: The company faces risks related to the global economic crisis, including potential difficulties in refinancing debt, volatility in entrance fee sales due to the housing market, and the ability of residents to afford fees. Interest rate risk is managed through swaps and caps, though fair value changes in these derivatives impact reported earnings.
- Operational Outlook: Management expects occupancy and entrance fee sales to normalize over the longer term. The company is focusing on organic growth, cost control, and expanding ancillary services rather than acquisitions in the near term.
Key Facts for Investor Verification
- Dividend Suspension: Confirm the indefinite suspension of dividends and the termination of the share repurchase program as liquidity preservation measures.
- Debt Extension Options: Verify the conditions precedent required to exercise the extension options on the $131.0 million of maturing mortgage debt.
- Derivative Valuation Impact: Review the impact of fair value changes in interest rate swaps and caps on net income, which caused a significant variance between operating income and net loss.
- Entrance Fee Volatility: Monitor entrance fee sales and refunds, as these are subject to housing market conditions and impact cash flow from operations.
- Occupancy Trends: Track the weighted average occupancy rate (88.5% for Q2 2009) against the prior year (88.9%) to assess the impact of economic conditions on demand.