Brookdale Senior Living Inc. - 10-Q Summary (Q3 2008)
Business Context and Reporting Period
This report covers the quarterly period ended September 30, 2008. Brookdale Senior Living Inc. is a leading owner and operator of senior living communities in the United States, including retirement centers, assisted living, and continuing care retirement centers (CCRCs). The company operates 550 communities with approximately 51,933 units/beds.
Key Financial Metrics
| Metric | Three Months Ended Sep 30, 2008 | Nine Months Ended Sep 30, 2008 |
|---|---|---|
| Total Revenue | $482.3 million | $1,441.1 million |
| Net Loss | $(35.9) million | $(94.5) million |
| Loss Per Share (Basic/Diluted) | $(0.36) | $(0.93) |
| Adjusted EBITDA | $67.4 million | $227.0 million |
| Cash From Facility Operations | $22.5 million | $97.7 million |
| Net Cash Provided by Operating Activities | $30.6 million | $107.4 million |
| Total Debt (Long-term + Current) | $2.38 billion | $2.38 billion |
| Cash and Cash Equivalents | $55.9 million | $55.9 million |
| Weighted Average Occupancy | 89.7% | 89.5% |
Material Changes vs. Prior Period
- Revenue Growth: Total revenue increased 3.8% ($17.7 million) for the quarter and 5.2% ($71.3 million) for the nine months compared to the prior year periods. This was driven by a 4.9% increase in average monthly revenue per unit/bed and growth in ancillary services (therapy and home health), partially offset by a decline in occupancy.
- Occupancy Decline: Weighted average occupancy decreased to 89.7% in Q3 2008 from 90.6% in Q3 2007. Management attributes this to the deteriorating housing market and credit crisis causing potential customers to delay moves.
- Expense Increases: Facility operating expenses increased 10.6% for the quarter. This included a $3.6 million charge for hurricane and named tropical storms expenses. General and administrative expenses decreased slightly, but included an $8.0 million litigation reserve established in Q2 2008.
- Interest Expense Volatility: Interest expense decreased significantly year-over-year due to favorable changes in the fair value of interest rate swaps, though the company recognized $8.5 million in swap-related expense for the quarter due to LIBOR yield curve shifts.
- Debt Maturities: Approximately $266.7 million of debt is classified as current due within 12 months. However, the company anticipates exercising extension options on $224.6 million of this debt, reducing the actual cash due in 2009 to approximately $5.3 million.
Guidance, Outlook, and Risks
- Outlook: Management expects occupancy to remain relatively flat in the near term and entrance fee sales to normalize over the longer term. Acquisition activity is expected to be reduced compared to historical levels due to market conditions, though selective opportunities may arise.
- Liquidity: The company maintains $55.9 million in cash and $94.7 million available under its corporate credit facility. Management believes existing cash flows and refinancing proceeds will be sufficient to fund liquidity needs for at least the next 12 months.
- Capital Expenditures: Anticipated capital expenditures for the remainder of 2008 are estimated between $115.0 million and $130.0 million, funded by cash on hand, operations, and debt financing.
- Risks:
- Credit Market Conditions: Uncertainty in refinancing the $270 million credit facility maturing in May 2009.
- Derivative Collateral: Volatility in credit markets may require additional cash collateral postings for interest rate swaps (currently $8.3 million posted).
- Legal Proceedings: Ongoing litigation regarding the 2004 sale of communities to Ventas; an $8.0 million reserve has been established.
- Entrance Fee Volatility: Sales of entrance fees are subject to variability based on the housing market and residents' ability to sell existing homes.
Key Facts for Investor Verification
- Debt Extension Options: Verify the company's ability to satisfy conditions precedent to extend $224.6 million of debt maturities currently classified as current liabilities.
- Derivative Counterparty Risk: Monitor the status of the $1.6 million receivable from a swap counterparty that filed for Chapter 11 bankruptcy protection.
- Occupancy Trends: Track whether the 0.9% decline in weighted average occupancy stabilizes or worsens given the economic environment.
- Capital Facility Refinancing: Confirm the refinancing or extension of the corporate credit facility maturing May 15, 2009, given current credit market tightness.
- Legal Reserve Adequacy: Assess if the $8.0 million litigation reserve is sufficient to resolve the Ventas-related legal actions.