Business Context and Reporting Period
Company: Brookdale Senior Living Inc.
Filing Type: Form 10-Q (Quarterly Report)
Reporting Period: Quarter and six months ended June 30, 2007
Business Overview: Brookdale is a leading owner and operator of senior living facilities in the United States, including independent living, assisted living, dementia-care facilities, and continuing care retirement centers (CCRCs). The company pursues growth through organic expansion, acquisitions, and the development of ancillary services.
Key Financial Metrics
| Metric | Three Months Ended June 30, 2007 |
Six Months Ended June 30, 2007 |
|---|---|---|
| Total Revenue | $458.4 million | $905.2 million |
| Net Loss | $(18.7) million | $(53.8) million |
| Loss Per Share (Basic/Diluted) | $(0.18) | $(0.53) |
| Operating Cash Flow | N/A | $84.9 million |
| Adjusted EBITDA (Non-GAAP) | $82.8 million | $153.4 million |
| Total Assets | $4.85 billion | $4.85 billion |
| Total Debt (incl. capital leases) | $1.89 billion | $1.89 billion |
| Cash and Cash Equivalents | $81.2 million | $81.2 million |
| Dividends Declared Per Share | $0.50 | $0.95 |
Material Changes vs. Prior Period
- Revenue Growth: Revenue increased 70.8% ($190.0 million) for the quarter and 84.5% ($414.6 million) for the six months compared to the prior year periods. This growth is primarily driven by acquisitions, most notably the American Retirement Corporation (ARC) acquisition in late 2006, and organic growth.
- Operating Loss: The company reported an operating loss of $12.9 million for the quarter and $29.0 million for the six months, compared to operating income of $6.5 million and $2.6 million in the respective prior year periods. The decline is attributed to increased depreciation, amortization, and facility lease expenses associated with new acquisitions.
- Net Loss: Net loss narrowed slightly to $18.7 million for the quarter (from $20.3 million) but widened to $53.8 million for the six months (from $39.6 million). The six-month increase in loss was driven by higher interest expense and equity losses in unconsolidated ventures, partially offset by a significant tax benefit.
- Acquisitions: During the six months ended June 30, 2007, the company completed eight acquisitions with an aggregate purchase price of approximately $202.4 million, adding three owned/leased facilities and expanding unit count by 17,270 (50.3% increase).
- Debt Levels: Total debt increased to $1.89 billion from $1.71 billion at year-end 2006, reflecting financing for acquisitions and facility purchases.
Guidance, Outlook, and Risks
- Management Commentary: Management continues to focus on increasing revenues and dividends through organic growth, ancillary service expansion, and selective acquisitions. Same-store revenues grew 7.8% for the quarter. Entrance fee sales were negatively impacted by softness in housing markets in Florida and Arizona but are expected to normalize.
- Liquidity: The company reported $81.2 million in cash and cash equivalents, with an additional $32.7 million available under its credit facility. Management believes existing resources are sufficient to fund operations and capital expenditures for the next 12 months.
- Capital Expenditures: The company expects to spend approximately $75.0 million on major capital projects and renovations and $25.0 million on corporate branding and infrastructure for the remainder of 2007.
- Risks and Contingencies:
- Legal Proceedings: Two significant legal actions remain pending related to the 2004 sale of facilities to Ventas Realty. Plaintiffs seek damages in excess of $100 million per count. The company cannot estimate the range of loss but intends to vigorously defend the actions.
- Interest Rate Risk: Approximately 96% of debt is fixed or hedged via swaps. A 100 basis point change in short-term rates would affect operating cash flow by no more than $1.8 million annually.
- Financing Availability: Future growth depends on the ability to secure financing; there is no assurance that additional debt or equity will be available on acceptable terms.
Investor Verification Checklist
- Acquisition Integration: Verify the operational performance and integration status of the ARC facilities and other 2007 acquisitions, which drive the majority of revenue growth but also increased operating expenses and debt.
- Legal Exposure: Monitor the status of the Ventas-related litigation (Atkins and Zimmerman cases) and potential financial impact, as damages sought are substantial.
- Entrance Fee Sales: Track entrance fee sales volume and net cash flow, as this metric is volatile and currently impacted by regional housing market conditions.
- Debt Covenants: Review compliance with debt covenants, specifically those related to Facility Operating Income and capital expenditure requirements ($250-$450 per unit/bed).
- Non-GAAP Reconciliations: Scrutinize the reconciliation of Adjusted EBITDA and Cash From Facility Operations to GAAP net loss to understand the impact of non-cash items and entrance fee accounting.