Business Context and Reporting Period
Company: Brookdale Senior Living Inc.
Filing Type: Form 10-K (Annual Report)
Period Ended: December 31, 2009
Business Overview: Brookdale is the largest operator of senior living communities in the United States by total capacity. As of December 31, 2009, the company operated 565 communities across 35 states with a capacity of approximately 53,600 residents. Operations are divided into four segments: Retirement Centers, Assisted Living, Continuing Care Retirement Communities (CCRCs), and Management Services. The company generates approximately 83% of its revenue from private pay customers.
Key Financial Metrics
| Metric (in millions) | 2009 | 2008 |
|---|---|---|
| Total Revenue | $2,023.1 | $1,928.1 |
| Net Loss (GAAP) | $(66.3) | $(373.2) |
| Adjusted EBITDA | $348.6 | $302.6 |
| Cash From Facility Operations | $196.8 | $130.1 |
| Facility Operating Income | $690.1 | $637.5 |
| Total Debt | $2,625.5 | $2,552.9 |
| Cash and Cash Equivalents | $66.4 | $54.0 |
| Occupancy Rate (Weighted Avg) | 88.8% | 89.6% |
Note: Net Loss for 2009 included a non-cash impairment charge of $10.1 million. Net Loss for 2008 included a non-cash impairment charge of $220.0 million.
Material Changes vs. Prior Period
- Revenue Growth: Total revenue increased 4.9% to $2.02 billion, driven primarily by a 5.1% increase in average monthly revenue per unit/bed and growth in ancillary services (therapy and home health). This growth was partially offset by a decline in occupancy rates.
- Profitability Improvement: Net loss improved significantly from $(373.2) million in 2008 to $(66.3) million in 2009. This improvement was largely due to the absence of the massive $220 million goodwill impairment recorded in 2008 and effective cost control measures.
- Non-GAAP Performance: Adjusted EBITDA increased 15.2% and Cash From Facility Operations increased 51.3%, reflecting improved operational efficiency and liquidity management.
- Acquisitions: In Q4 2009, the company acquired 18 communities from Sunrise Senior Living for $190 million and three retirement center communities for $102 million, adding 1,839 units to the portfolio.
- Capital Structure: The company completed a public equity offering in Q2 2009 raising $163.8 million, which was used to repay $125 million of indebtedness under its credit facility. Consequently, the company ended the year with no borrowings on its revolving credit facility.
Guidance, Outlook, and Risks
Management Commentary & Outlook: Management expects to continue growing revenues through organic growth, expansion of ancillary services, and selective acquisitions. The company anticipates that entrance fee sales and occupancy will normalize over the longer term despite current economic headwinds. Capital expenditures for 2010 are estimated between $75 million and $100 million.
Key Risks and Contingencies:
- Therapy Cap Exceptions: Medicare therapy cap exceptions expired on December 31, 2009. Failure to reinstate these exceptions could negatively impact net operating income from outpatient therapy services by an estimated $5.0 million to $10.0 million annually.
- Liquidity and Debt Maturities: Approximately $166.2 million of debt obligations were scheduled to mature in 2010. However, the company has options to extend approximately $126.0 million of this debt to 2011. The company entered into a new $100 million revolving credit facility in February 2010 to replace the expiring facility.
- Economic Conditions: The company faces risks related to the housing market and general economic downturn, which may delay residents' ability to sell homes to pay entrance fees or afford monthly fees.
- Regulatory Environment: Intensified regulatory enforcement and potential changes in reimbursement policies for Medicare and Medicaid programs pose ongoing risks.
Investor Verification Checklist
- Debt Extension Status: Verify the successful exercise of extension options for the $126 million of debt maturing in 2010 and compliance with the new credit facility covenants.
- Therapy Cap Legislation: Monitor Congressional action regarding the reinstatement of Medicare therapy cap exceptions to assess potential revenue impact on ancillary services.
- Occupancy Trends: Track occupancy rates, particularly in Retirement Centers and CCRCs, to ensure they stabilize or improve as the economy recovers.
- Acquisition Integration: Review the financial performance of the 21 communities acquired in late 2009 to ensure they meet projected cash flow targets.
- Entrance Fee Sales: Monitor quarterly entrance fee receipts and refunds to gauge the health of the CCRC segment and the impact of the housing market on sales velocity.