Brookdale Senior Living Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; comparison is with the three months ended March 31, 2023. Brookdale operated or managed 652 senior living communities in 41 states, with capacity for approximately 59,000 residents: 345 owned, 277 leased and 30 managed.
Financial results and operating metrics
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Total revenue and other operating income | $782.8 million | $753.3 million | +3.9% |
| Resident fees | $744.2 million | $713.4 million | +4.3% |
| Income from operations | $19.2 million | $7.8 million | Improved |
| Net loss | $(29.6) million | $(44.6) million | Loss narrowed |
| Net loss per share, basic and diluted | $(0.13) | $(0.20) | Improved |
| Adjusted EBITDA (non-GAAP) | $97.6 million | $88.6 million | +10.1% |
| Net cash from operating activities | $(1.1) million | $24.0 million | Declined |
| Adjusted Free Cash Flow (non-GAAP) | $(26.3) million | $(21.2) million | More negative |
Operating income was approximately 2.5% of revenue, compared with 1.0% a year earlier. Same-community RevPAR rose 6.3%, reflecting a 4.3% increase in RevPOR and a 150-basis-point increase in occupancy to 78.0%. Across the senior housing segments, reported occupancy was 77.9%, up 160 basis points, and RevPAR increased 6.7%.
Same-community resident fees rose 6.3%, while same-community facility operating expense increased 4.3%. Brookdale attributed revenue growth to rate increases and occupancy recovery. Expense pressures included inflation, an extra day in the leap-year quarter and weather-related repairs; lower premium labor use partly offset those pressures. Dispositions reduced year-over-year resident fees by $16.3 million and facility operating expense by $13.7 million.
Balance sheet, debt and liquidity
- At March 31, 2024, cash and cash equivalents were $318.5 million; restricted cash was $77.1 million. Total reported cash, cash equivalents and restricted cash were $395.7 million.
- Brookdale reported total liquidity of $355.1 million, including $318.5 million of unrestricted cash and $36.5 million of availability under its secured credit facility. It had $63.5 million of letters of credit and no cash borrowings under that $100 million facility.
- Total debt was approximately $3.8 billion, with a weighted average interest rate of 5.62%. About 91.1% was non-recourse, property-level mortgage financing. Variable-rate debt carried a 7.75% weighted average rate; 94% of it was subject to interest-rate caps or swaps.
- Brookdale had approximately $1.0 billion of operating and financing lease obligations and estimated $278.4 million of cash lease payments for the 12 months ending March 31, 2025. Current liabilities exceeded current assets by $98.5 million, including current lease obligations.
- Long-term debt carrying value was $3.8 billion; disclosed fair value was approximately $3.5 billion. The company said it was in compliance with debt and lease financial covenants at quarter-end.
- Capital expenditures, net, were $50.8 million in Q1, including $50.6 million of non-development spending. Cash used for capital expenditures in the cash-flow statement was $44.4 million, net of related payables.
Material changes, outlook and risks
- Brookdale obtained $50 million of variable-rate mortgage financing in February, secured by 11 communities, maturing in 2027 with two conditional one-year extension options. It reported that all 2024 mortgage debt maturities had been refinanced. A $100 million mortgage maturity is scheduled for January 2025, with two conditional one-year extensions.
- Management expects 2024 non-development capital expenditures, net of anticipated lessor reimbursements, of approximately $180 million. It said existing liquidity sources are expected to fund needs for at least the next 12 months, while cautioning that financing or asset monetizations may not be available on acceptable terms or at all. No specific earnings or revenue guidance is provided in the supplied filing text.
- Operating cash flow turned negative, primarily reflecting working-capital timing, including incentive compensation and annual insurance-premium payments. Management said working-capital changes generally fluctuate and are generally neutral over a full year.
- Brookdale remains highly leveraged and exposed to interest rates, refinancing availability, debt and lease covenants, and cross-default provisions. It warned that insufficient refinancing for 2025 and later maturities could pressure liquidity. Its estimates show annual interest expense on variable-rate debt rising by $2.9 million for a 200-basis-point SOFR increase, after existing hedges.
- Other key risks include labor and wage pressure, inflation, resident affordability and occupancy, reimbursement and regulatory changes, weather and casualty events, cybersecurity, and litigation or government investigations. A $1.7 million non-cash impairment charge was recorded, primarily for property damage at certain communities.
- Brookdale disclosed ongoing litigation and regulatory review risks, including a pending stockholder derivative lawsuit and an appeal of the dismissal of another derivative case. It reported no material changes to the risk factors in its 2023 Form 10-K.
- Potential dilution warrants attention: the filing reports up to 38.3 million shares issuable on conversion of the notes, up to 39.5 million under outstanding purchase contracts, and a 16.3 million-share warrant, subject to applicable terms. During Q1, 3.6 million shares were delivered upon settlement of purchase contracts.
Important facts for investors to verify
- Whether occupancy and rate gains continue to outpace same-community cost growth, particularly labor, insurance and repair costs.
- Operating cash flow and free-cash-flow conversion after Q1 working-capital timing effects and planned capital expenditures.
- Debt maturities, extension conditions and refinancing capacity, alongside substantial lease-payment obligations and variable-rate exposure.
- Progress toward the $180 million 2024 non-development capital expenditure estimate and the availability of lessor and insurance reimbursements.
- Potential dilution from convertible notes, purchase contracts and the warrant, and the terms and timing of any settlement.
- Developments in litigation, government reviews and weather-related property damage or insurance recoveries.
Adjusted EBITDA and Adjusted Free Cash Flow are non-GAAP measures; Brookdale cautions that they have limitations and should not replace GAAP results or operating cash flow.