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Brookdale Announces First Quarter 2021 Results

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NASHVILLE, Tenn., May 6, 2021 /PRNewswire/ -- Brookdale Senior Living Inc. (NYSE: BKD) ("Brookdale" or the "Company") announced results for the quarter ended March 31, 2021.

(PRNewsfoto/Brookdale Senior Living Inc.)
(PRNewsfoto/Brookdale Senior Living Inc.)

HIGHLIGHTS

  • Net move-ins and move-outs turned positive in March for the first time since the COVID-19 pandemic began and remained positive in April.

  • Sequentially, monthly weighted average occupancy grew slightly in March, and increased 50 basis points in April.

  • First quarter revenue per occupied unit (RevPOR) increased by 2.9% year-over-year on a same community basis.

  • All communities completed at least three vaccine clinics with a 93% resident vaccine acceptance rate. COVID-19 positive resident caseload has decreased by 97% since the peak in mid-December 2020.

"We are pleased that our communities' occupancy began to grow again by the end of the first quarter and confident in our ability to continue to help our residents, patients and associates put the COVID-19 pandemic behind them", said Lucinda ("Cindy") Baier, Brookdale's President and CEO. "We recognized early the critically important role vaccines would play in the recovery, and we successfully advocated for priority vaccine access for those in our communities and across our industry. Brookdale's resident vaccine acceptance rate is 93% and we are pleased to continue helping seniors to live meaningful and joyful lives. We expect to see positive occupancy momentum in the coming months and believe we are making progress on our path to recovery."

SUMMARY OF FIRST QUARTER RESULTS

Consolidated

The table below presents a summary of consolidated operating results.



Year-Over-Year

Increase / (Decrease)



Sequential

Increase / (Decrease)

($ in millions)

1Q 2021

1Q 2020

Amount

Percent


4Q 2020

Amount

Percent

Resident fee revenue

$

664.4


$

782.7


$

(118.3)

(15.1)%


$

677.5


$

(13.1)

(1.9)%

Management fee revenue

8.6


108.7


(100.1)

(92.1)%


10.2


(1.6)

(15.7)%

Other operating income

10.7



10.7

NM


78.3


(67.6)

(86.3)%

Facility operating expense

556.3


588.5


(32.2)

(5.5)%


576.8


(20.5)

(3.6)%

General and administrative expense

49.9


54.6


(4.7)

(8.6)%


45.3


4.6

10.2%

Net income (loss)

(108.3)


369.5


477.8

NM


(44.1)


(64.2)

(145.6)%

Adjusted EBITDA (1)

35.0


185.1


(150.1)

(81.1)%


98.6


(63.6)

(64.5)%

Adjusted EBITDA, excluding $100.0 million
management termination fee in 1Q 2020

35.0


85.1


(50.1)

(58.9)%


98.6


(63.6)

(64.5)%




(1)

Adjusted EBITDA is a financial measure that is not calculated in accordance with GAAP. See "Reconciliations of Non-GAAP Financial Measures" for the Company's definition of such measure, reconciliations to the most comparable GAAP financial measure, and other important information regarding the use of the Company's non-GAAP financial measures.

  • Resident fee revenue.

  • Management fee revenue.

  • Other operating income.

  • Facility operating expense.

  • General and administrative expense.

  • Net income (loss).

  • Adjusted EBITDA.

  • COVID-19 Impact.


Mar
2020

Apr
2020

May
2020

Jun
2020

Jul
2020

Aug
2020

Sep
2020

Oct
2020

Nov
2020

Dec
2020

Jan
2021

Feb

2021

Mar

2021

Apr

2021

Weighted average occupancy

82.7

%

80.4

%

78.4

%

77.4

%

76.4

%

75.2

%

74.3

%

73.8

%

72.8

%

71.5

%

70.0

%

69.4

%

69.4

%

69.9

%

Month-end occupancy

82.2

%

80.0

%

78.5

%

77.8

%

76.6

%

75.5

%

75.0

%

74.1

%

73.1

%

71.5

%

70.4

%

70.1

%

70.6

%

71.1

%

Same Community Senior Housing (Independent Living (IL), Assisted Living and Memory Care (AL/MC), and CCRCs)

The table below presents a summary of same community operating results and metrics of the Company's consolidated senior housing portfolio.(2)




Year-Over-Year

Increase / (Decrease)


Sequential

Increase / (Decrease)

($ in millions, except RevPAR
and RevPOR)

1Q 2021

1Q 2020

Amount

Percent

4Q 2020

Amount

Percent

RevPAR

$

3,643

$

4,249

$

(606)

(14.3)%

$

3,693

$

(50)

(1.4)%

Weighted average occupancy

69.5%

83.4%

(1,390) bps

n/a

72.7%

(320) bps

n/a

RevPOR

$

5,244

$

5,097

$

147

2.9%

$

5,076

$

168

3.3%

Facility operating expense

$

446.3

$

450.7

$

(4.4)

(1.0)%

$

458.8

$

(12.5)

(2.7)%




(2)

The same community portfolio includes operating results and data for 637 communities consolidated and operational for the full period in both comparison years. Consolidated communities excluded from the same community portfolio include communities acquired or disposed of since the beginning of the prior year, communities classified as assets held for sale, certain communities planned for disposition, certain communities that have undergone or are undergoing expansion, redevelopment, and repositioning projects, and certain communities that have experienced a casualty event that significantly impacts their operations. To aid in comparability, same community operating results exclude (i) natural disaster expense of $1.1 million, natural disaster-related insurance recoveries of $1.4 million, and natural disaster expense of $1.6 million for the first quarter of 2021, the first quarter of 2020, and the fourth quarter of 2020, respectively. As presented herein, same community facility operating expense includes the direct costs incurred to respond to the COVID-19 pandemic.

  • Resident fees.

  • Facility operating expense.

Health Care Services



Year-Over-Year

Increase / (Decrease)


Sequential

Increase / (Decrease)

($ in millions)

1Q 2021

1Q 2020

Amount

Percent

4Q 2020

Amount

Percent

Resident fee revenue

$

86.9


$

94.8


$

(7.9)


(8.3)

%

$

91.9


$

(5.0)


(5.4)

%

Facility operating expense

87.0


103.9


(16.9)


(16.3)

%

92.1


(5.1)


(5.5)

%

  • Resident fee revenue.

  • Facility operating expense.

LIQUIDITY

The table below presents a summary of the Company's net cash provided by (used in) operating activities and Adjusted Free Cash Flow.

($ in millions)

1Q 2021

1Q 2020

Year-Over-
Year
Increase /
(Decrease)

4Q 2020

Sequential

Increase /
(Decrease)

Net cash provided by (used in) operating activities

$

(23.9)


$

57.5


$

(81.4)


$

73.5


$

(97.4)


Adjusted Free Cash Flow (3)

(50.7)


5.2


(55.9)


19.9


(70.6)





(3)

Adjusted Free Cash Flow is a financial measure that is not calculated in accordance with GAAP. See "Reconciliations of Non-GAAP Financial Measures" for the Company's definition of such measure, reconciliations to the most comparable GAAP financial measure and other important information regarding the use of the Company's non-GAAP financial measures.

  • Net cash provided by (used in) operating activities.

  • Adjusted Free Cash Flow.

  • Total Liquidity. Total liquidity of $438.9 million as of March 31, 2021 included $304.0 million of unrestricted cash and cash equivalents and $134.9 million of marketable securities. Total liquidity as of March 31, 2021 decreased $136.6 million from December 31, 2020, primarily attributable to the negative $50.7 million of Adjusted Free Cash Flow and $38.3 million of payments of mortgage debt during the first quarter of 2021. The current portion of long-term debt as of March 31, 2021 was $224.9 million, which primarily includes $172.6 million of non-recourse mortgage debt maturing in the first quarter of 2022. The Company has no remaining non-recourse mortgage debt maturities in 2021.

TRANSACTION UPDATE

  • Health Care Services segment: On February 24, 2021, the Company entered into a Securities Purchase Agreement (the "Purchase Agreement") with affiliates of HCA Healthcare, Inc., providing for the sale of 80% of the Company's equity in its Health Care Services segment for a purchase price of $400 million in cash, subject to certain adjustments set forth in the Purchase Agreement, including a reduction for the remaining outstanding balance as of the closing of Medicare advanced payments and deferred payroll tax payments related to the Health Care Services segment, which were $75.2 million and $8.9 million, respectively, as of March 31, 2021. The closing of the sale transaction is anticipated to occur in the early second half of 2021, subject to receipt of applicable regulatory approvals and satisfaction of other customary closing conditions set forth in the Purchase Agreement. Pursuant to the Purchase Agreement, at closing of the transaction, the Company will retain a 20% equity interest in the business. There can be no assurance that the transaction will close or, if it does, when the actual closing will occur.

OUTLOOK

Key factors that may impact the Company's financial performance and liquidity for 2021 include:

  • Senior Housing Occupancy: With sequential occupancy growth in March, the Company expects, on a sequential basis, growth in the second quarter and stronger growth in the third quarter of 2021. The Company also expects to continue to publish monthly occupancy until it returns to providing financial guidance, at which point it would expect to return to its historical reporting practices.

  • Pandemic-related Expenses: With significantly lower COVID-19 cases, the Company expects to reduce pandemic-related expenses more than 50% in the second quarter, compared to the $27.3 million reported in the first quarter of 2021.

  • Non-development Capital Expenditures: The Company expects non-development capital expenditures, net of lessor reimbursements, to be approximately $140 million for the full year 2021.

  • Working Capital impacts related to Government Temporary Liquidity Relief, excluding Health Care Services segment repayments impacted by the transaction described above:

SUPPLEMENTAL INFORMATION

The Company will post on its website at www.brookdale.com/investor supplemental information relating to the Company's first quarter 2021 results, an updated investor presentation, and a copy of this earnings release. The supplemental information and a copy of this earnings release will also be furnished in a Form 8-K to be filed with the SEC.

EARNINGS CONFERENCE CALL

Brookdale's management will conduct a conference call to review the financial results for the first quarter 2021 on May 7, 2021 at 9:00 AM ET. The conference call can be accessed by dialing (833) 366-1368 (from within the U.S.) or (639) 380-0044 (from outside of the U.S.) ten minutes prior to the scheduled start and referencing "Brookdale".

A webcast of the conference call will be available to the public on a listen-only basis at www.brookdale.com/investor. Please allow extra time prior to the call to visit the site and download the necessary software required to listen to the internet broadcast. A replay of the webcast will be available through the website following the call.

For those who cannot listen to the live call, a replay will be available until 11:59 PM ET on May 14, 2021 by dialing (800) 585-8367 (from within the U.S.) or (416) 621-4642 (from outside of the U.S.) and referencing access code "7695118".

ABOUT BROOKDALE SENIOR LIVING

Brookdale Senior Living Inc., the nation's premier operator of senior living communities, is committed to its mission of enriching the lives of the people it serves with compassion, respect, excellence and integrity. The Company operates independent living, assisted living, Alzheimer's and dementia care communities, and through its comprehensive network of services, Brookdale helps to provide seniors with care and services to support their lifestyle in an environment that feels like home. The Company's expertise in healthcare, hospitality and real estate provides our residents with opportunities to improve wellness, pursue passions and stay connected with friends and loved ones. The Company operates and manages 695 communities in 42 states as of March 31, 2021, with the ability to serve approximately 60,000 residents and 16,000 patients. Brookdale's stock trades on the New York Stock Exchange under the ticker symbol BKD. For more information, visit brookdale.com or connect with Brookdale on Facebook or Twitter.

DEFINITIONS OF RevPAR AND RevPOR

RevPAR, or average monthly senior housing resident fee revenue per available unit, is defined by the Company as resident fee revenue for the corresponding portfolio for the period (excluding Health Care Services segment revenue, revenue for private duty services provided to seniors living outside of the Company's communities, and entrance fee amortization), divided by the weighted average number of available units in the corresponding portfolio for the period, divided by the number of months in the period.

RevPOR, or average monthly senior housing resident fee revenue per occupied unit, is defined by the Company as resident fee revenue for the corresponding portfolio for the period (excluding Health Care Services segment revenue, revenue for private duty services provided to seniors living outside of the Company's communities, and entrance fee amortization), divided by the weighted average number of occupied units in the corresponding portfolio for the period, divided by the number of months in the period.

SAFE HARBOR

Certain statements in this press release and the associated earnings call may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to various risks and uncertainties and include all statements that are not historical statements of fact and those regarding the Company's intent, belief or expectations. Forward-looking statements are generally identifiable by use of forward-looking terminology such as "may," "will," "should," "could," "would," "potential," "intend," "expect," "endeavor," "seek," "anticipate," "estimate," "believe," "project," "predict," "continue," "plan," "target," or other similar words or expressions. These forward-looking statements are based on certain assumptions and expectations, and the Company's ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Although the Company believes that expectations reflected in any forward-looking statements are based on reasonable assumptions, it can give no assurance that its assumptions or expectations will be attained and actual results and performance could differ materially from those projected. Factors which could have a material adverse effect on the Company's operations and future prospects or which could cause events or circumstances to differ from the forward-looking statements include, but are not limited to, the impacts of the COVID-19 pandemic, including the response efforts of federal, state, and local government authorities, businesses, individuals, and the Company on the Company's business, results of operations, cash flow, liquidity, and strategic initiatives, including plans for future growth, which will depend on many factors, some of which cannot be foreseen, including the duration, severity, and breadth of the pandemic and any resurgence of the disease, the impact of COVID-19 on the nation's economy and debt and equity markets and the local economies in the Company's markets, the development, availability, utilization, and efficacy of COVID-19 testing, therapeutic agents, and vaccines and the prioritization of such resources among businesses and demographic groups, government financial and regulatory relief efforts that may become available to business and individuals, including the Company's ability to qualify for and satisfy the terms and conditions of financial relief, perceptions regarding the safety of senior living communities during and after the pandemic, changes in demand for senior living communities and the Company's ability to adapt its sales and marketing efforts to meet that demand, the impact of COVID-19 on the Company's residents' and their families' ability to afford resident fees, including due to changes in unemployment rates, consumer confidence, housing markets, and equity markets caused by COVID-19, changes in the acuity levels of the Company's new residents, the disproportionate impact of COVID-19 on seniors generally and those residing in the Company's communities, the duration and costs of the Company's response efforts, including increased equipment, supplies, labor, litigation, testing, vaccination clinic, and other expenses, the impact of COVID-19 on the Company's ability to complete financings, refinancings, or other transactions (including dispositions and the Company's pending Health Care Services transaction) or to generate sufficient cash flow to cover required interest and lease payments and to satisfy financial and other covenants in its debt and lease documents, increased regulatory requirements, including unfunded, mandatory testing, increased enforcement actions resulting from COVID-19, government action that may limit the Company's collection or discharge efforts for delinquent accounts, and the frequency and magnitude of legal actions and liability claims that may arise due to COVID-19 or the Company's response efforts; events which adversely affect the ability of seniors to afford resident fees, including downturns in the economy, housing market, consumer confidence, or the equity markets and unemployment among resident family members; changes in reimbursement rates, methods, or timing under governmental reimbursement programs including the Medicare and Medicaid programs; the impact of ongoing healthcare reform efforts; the effects of senior housing construction and development, lower industry occupancy (including due to the pandemic), and increased competition; conditions of housing markets, regulatory changes, acts of nature, and the effects of climate change in geographic areas where the Company is concentrated; terminations of the Company's resident agreements and vacancies in the living spaces it leases, including due to the pandemic; limits on the Company's ability to use net operating loss carryovers to reduce future tax payments; failure to maintain the security and functionality of the Company's information systems, to prevent a cybersecurity attack or breach, or to comply with applicable privacy and consumer protection laws, including HIPAA; the Company's ability to complete its capital expenditures in accordance with its plans; the Company's ability to identify and pursue development, investment and acquisition opportunities and its ability to successfully integrate acquisitions; competition for the acquisition of assets; the Company's ability to complete pending or expected disposition, acquisition, or other transactions (including the Company's pending Health Care Services transaction) on agreed upon terms or at all, including in respect of the satisfaction of closing conditions, the risk that regulatory approvals are not obtained or are subject to unanticipated conditions, and uncertainties as to the timing of closing, and the Company's ability to identify and pursue any such opportunities in the future; risks related to the implementation of the Company's strategy, including initiatives undertaken to execute on the Company's strategic priorities and their effect on its results; delays in obtaining regulatory approvals; disruptions in the financial markets or decreases in the appraised values or performance of the Company's communities that affect the Company's ability to obtain financing or extend or refinance debt as it matures and the Company's financing costs; the Company's ability to generate sufficient cash flow to cover required interest and long-term lease payments and to fund its planned capital projects; the effect of the Company's non-compliance with any of its debt or lease agreements (including the financial covenants contained therein), including the risk of lenders or lessors declaring a cross default in the event of the Company's non-compliance with any such agreements and the risk of loss of the Company's property securing leases and indebtedness due to any resulting lease terminations and foreclosure actions; the effect of the Company's indebtedness and long-term leases on the Company's liquidity; the potential phasing out of LIBOR which may increase the costs of the Company's debt obligations; the Company's ability to obtain additional capital on terms acceptable to it; departures of key officers and potential disruption caused by changes in management; increased competition for or a shortage of personnel (including due to the pandemic), wage pressures resulting from increased competition, low unemployment levels, minimum wage increases and changes in overtime laws, and union activity; environmental contamination at any of the Company's communities; failure to comply with existing environmental laws; an adverse determination or resolution of complaints filed against the Company, including class action and stockholder derivative complaints; the cost and difficulty of complying with increasing and evolving regulation; costs to respond to, and adverse determinations resulting from, government reviews, audits and investigations; unanticipated costs to comply with legislative or regulatory developments; the risks associated with current global economic conditions and general economic factors such as inflation, the consumer price index, commodity costs, fuel and other energy costs, costs of salaries, wages, benefits, and insurance, interest rates, and tax rates; the impact of seasonal contagious illness or an outbreak of COVID-19 or other contagious disease in the markets in which the Company operates; actions of activist stockholders, including a proxy contest; as well as other risks detailed from time to time in the Company's filings with the Securities and Exchange Commission, including those set forth in the Company's Annual Report on Form 10-K and Quarterly Reports on Form 10-Q. When considering forward-looking statements, you should keep in mind the risk factors and other cautionary statements in such SEC filings. Readers are cautioned not to place undue reliance on any of these forward-looking statements, which reflect management's views as of the date of this press release and/or associated earnings call. The Company cannot guarantee future results, levels of activity, performance or achievements, and, except as required by law, it expressly disclaims any obligation to release publicly any updates or revisions to any forward-looking statements contained in this press release and/or associated earnings call to reflect any change in the Company's expectations with regard thereto or change in events, conditions, or circumstances on which any statement is based.

Condensed Consolidated Statements of Operations



Three Months Ended

March 31,

(in thousands, except per share data)

2021


2020

Revenue




Resident fees

$

664,350



$

782,707


Management fees

8,566



108,715


Reimbursed costs incurred on behalf of managed communities

65,794



122,717


Other operating income

10,735




Total revenue and other operating income

749,445



1,014,139






Expense




Facility operating expense (excluding facility depreciation and amortization of $77,274 and
$84,301, respectively)

556,312



588,482


General and administrative expense (including non-cash stock-based compensation expense
of $4,783 and $5,957, respectively)

49,943



54,595


Facility operating lease expense

44,418



64,481


Depreciation and amortization

83,891



90,738


Asset impairment

10,677



78,226


Costs incurred on behalf of managed communities

65,794



122,717


Total operating expense

811,035



999,239


Income (loss) from operations

(61,590)



14,900






Interest income

421



1,455


Interest expense:




Debt

(35,351)



(41,763)


Financing lease obligations

(11,383)



(13,282)


Amortization of deferred financing costs and debt discount

(1,873)



(1,315)


Gain (loss) on debt modification and extinguishment, net



19,181


Equity in earnings (loss) of unconsolidated ventures

(531)



(1,008)


Gain (loss) on sale of assets, net

1,112



372,839


Other non-operating income (loss)

1,644



2,662


Income (loss) before income taxes

(107,551)



353,669


Benefit (provision) for income taxes

(752)



15,828


Net income (loss)

(108,303)



369,497


Net (income) loss attributable to noncontrolling interest

18



18


Net income (loss) attributable to Brookdale Senior Living Inc. common stockholders

$

(108,285)



$

369,515






Net income (loss) per share attributable to Brookdale Senior Living Inc. common stockholders:




Basic

$

(0.59)



$

2.01


Diluted

$

(0.59)



$

2.00






Weighted average common shares outstanding:




Basic

184,011



184,186


Diluted

184,011



184,522


Condensed Consolidated Balance Sheets


(in thousands)

March 31, 2021


December 31, 2020

Cash and cash equivalents

$

303,952



$

380,420


Marketable securities

134,933



172,905


Restricted cash

26,503



28,059


Accounts receivable, net

52,588



109,221


Assets held for sale

247,627



16,061


Prepaid expenses and other current assets, net

90,949



66,937


Total current assets

856,552



773,603


Property, plant and equipment and leasehold intangibles, net

5,018,409



5,068,060


Operating lease right-of-use assets

743,346



788,138


Other assets, net

127,846



271,957


Total assets

$

6,746,153



$

6,901,758






Current portion of long-term debt

$

224,890



$

68,885


Current portion of financing lease obligations

20,083



19,543


Current portion of operating lease obligations

140,339



146,226


Liabilities held for sale

116,142




Other current liabilities

397,508



456,079


Total current liabilities

898,962



690,733


Long-term debt, less current portion

3,664,901



3,847,103


Financing lease obligations, less current portion

539,071



543,764


Operating lease obligations, less current portion

797,311



819,429


Other liabilities

150,801



198,000


Total liabilities

6,051,046



6,099,029


Total Brookdale Senior Living Inc. stockholders' equity

692,830



800,434


Noncontrolling interest

2,277



2,295


Total equity

695,107



802,729


Total liabilities and equity

$

6,746,153



$

6,901,758


Condensed Consolidated Statements of Cash Flows



Three Months Ended March 31,

(in thousands)

2021


2020

Cash Flows from Operating Activities




Net income (loss)

$

(108,303)



$

369,497


Adjustments to reconcile net income (loss) to net cash provided by (used in) operating
activities:




Loss (gain) on debt modification and extinguishment, net



(19,181)


Depreciation and amortization, net

85,764



92,053


Asset impairment

10,677



78,226


Equity in (earnings) loss of unconsolidated ventures

531



1,008


Amortization of entrance fees

(364)



(377)


Proceeds from deferred entrance fee revenue

670



343


Deferred income tax (benefit) provision

319



(21,767)


Operating lease expense adjustment

(4,664)



(6,733)


Loss (gain) on sale of assets, net

(1,112)



(372,839)


Non-cash stock-based compensation expense

4,783



5,957


Other

(1,416)



(1,460)


Changes in operating assets and liabilities:




Accounts receivable, net

(5,768)



(2,033)


Prepaid expenses and other assets, net

(6,769)



(1,696)


Prepaid insurance premiums financed with notes payable

(12,985)



(17,434)


Trade accounts payable and accrued expenses

(500)



(47,919)


Refundable fees and deferred revenue

7,717



(2,254)


Operating lease assets and liabilities for lessor capital expenditure reimbursements

7,563



4,088


Net cash provided by (used in) operating activities

(23,857)



57,479


Cash Flows from Investing Activities




Change in lease security deposits and lease acquisition deposits, net

(62)



3,211


Purchase of marketable securities

(79,932)



(89,414)


Sale and maturities of marketable securities

117,995



50,000


Capital expenditures, net of related payables

(40,361)



(69,385)


Acquisition of assets, net of related payables and cash received



(446,688)


Investment in unconsolidated ventures

(5,206)



(268)


Proceeds from sale of assets, net

3,760



304,617


Net cash provided by (used in) investing activities

(3,806)



(247,927)


Cash Flows from Financing Activities




Proceeds from debt

18,575



471,785


Repayment of debt and financing lease obligations

(49,924)



(263,226)


Proceeds from line of credit



166,381


Purchase of treasury stock, net of related payables



(18,123)


Payment of financing costs, net of related payables

(87)



(5,815)


Payments of employee taxes for withheld shares

(4,329)



(3,898)


Other

203



146


Net cash provided by (used in) financing activities

(35,562)



347,250


Net increase (decrease) in cash, cash equivalents, and restricted cash

(63,225)



156,802


Cash, cash equivalents, and restricted cash at beginning of period

465,148



301,697


Cash, cash equivalents, and restricted cash at end of period

$

401,923



$

458,499


Reconciliations of Non-GAAP Financial Measures

This earnings release contains the financial measures Adjusted EBITDA and Adjusted Free Cash Flow, which are not calculated in accordance with U.S. generally accepted accounting principles ("GAAP"). Presentations of these non-GAAP financial measures are intended to aid investors in better understanding the factors and trends affecting the Company's performance and liquidity. However, investors should not consider these non-GAAP financial measures as a substitute for financial measures determined in accordance with GAAP, including net income (loss), income (loss) from operations, or net cash provided by (used in) operating activities. Investors are cautioned that amounts presented in accordance with the Company's definitions of these non-GAAP financial measures may not be comparable to similar measures disclosed by other companies because not all companies calculate non-GAAP measures in the same manner. Investors are urged to review the following reconciliations of these non-GAAP financial measures from the most comparable financial measures determined in accordance with GAAP.

Adjusted EBITDA

Adjusted EBITDA is a non-GAAP performance measure that the Company defines as net income (loss) excluding: benefit/provision for income taxes, non-operating income/expense items, and depreciation and amortization; and further adjusted to exclude income/expense associated with non-cash, non-operational, transactional, cost reduction, or organizational restructuring items that management does not consider as part of the Company's underlying core operating performance and that management believes impact the comparability of performance between periods. For the periods presented herein, such other items include non-cash impairment charges, gain/loss on facility lease termination and modification, operating lease expense adjustment, amortization of deferred gain, change in future service obligation, non-cash stock-based compensation expense, and transaction and organizational restructuring costs. Transaction costs include those directly related to acquisition, disposition, financing, and leasing activity, and stockholder relations advisory matters, and are primarily comprised of legal, finance, consulting, professional fees, and other third party costs. Organizational restructuring costs include those related to the Company's efforts to reduce general and administrative expense and its senior leadership changes, including severance.

The Company believes that presentation of Adjusted EBITDA as a performance measure is useful to investors because (i) it is one of the metrics used by the Company's management for budgeting and other planning purposes, to review the Company's historic and prospective core operating performance, and to make day-to-day operating decisions; (ii) it provides an assessment of operational factors that management can impact in the short-term, namely revenues and the controllable cost structure of the organization, by eliminating items related to the Company's financing and capital structure and other items that management does not consider as part of the Company's underlying core operating performance and that management believes impact the comparability of performance between periods; and (iii) the Company believes that this measure is used by research analysts and investors to evaluate the Company's operating results and to value companies in its industry.

Adjusted EBITDA has material limitations as a performance measure, including: (i) excluded interest and income tax are necessary to operate the Company's business under its current financing and capital structure; (ii) excluded depreciation, amortization and impairment charges may represent the wear and tear and/or reduction in value of the Company's communities, goodwill, and other assets and may be indicative of future needs for capital expenditures; and (iii) the Company may incur income/expense similar to those for which adjustments are made, such as gain/loss on sale of assets, facility lease termination and modification, or debt modification and extinguishment, non-cash stock-based compensation expense, and transaction and other costs, and such income/expense may significantly affect the Company's operating results.

The table below reconciles the Company's Adjusted EBITDA from its net income (loss).


Three Months Ended

(in thousands)

March 31, 2021


December 31, 2020


March 31, 2020

Net income (loss)

$

(108,303)



$

(44,139)



$

369,497


Provision (benefit) for income taxes

752



(2,208)



(15,828)


Equity in (earnings) loss of unconsolidated ventures

531



1,244



1,008


Loss (gain) on debt modification and extinguishment, net



211



(19,181)


Loss (gain) on sale of assets, net

(1,112)



(513)



(372,839)


Other non-operating (income) loss

(1,644)



(1,050)



(2,662)


Interest expense

48,607



49,451



56,360


Interest income

(421)



(494)



(1,455)


Income (loss) from operations

(61,590)



2,502



14,900


Depreciation and amortization

83,891



87,513



90,738


Asset impairment

10,677



10,579



78,226


Loss (gain) on facility lease termination and modification,

net



(2,303)




Operating lease expense adjustment

(4,664)



(4,000)



(6,733)


Non-cash stock-based compensation expense

4,783



2,535



5,957


Transaction and organizational restructuring costs

1,884



1,778



1,981


Adjusted EBITDA(1)

$

34,981



$

98,604



$

185,069


$100.0 million management termination fee





(100,000)


Adjusted EBITDA, excluding $100.0 million management
termination fee

$

34,981



$

98,604



$

85,069




(1)

Adjusted EBITDA includes:


Adjusted Free Cash Flow

Adjusted Free Cash Flow is a non-GAAP liquidity measure that the Company defines as net cash provided by (used in) operating activities before: distributions from unconsolidated ventures from cumulative share of net earnings, changes in prepaid insurance premiums financed with notes payable, changes in operating lease liability for lease termination, cash paid/received for gain/loss on facility lease termination and modification, and lessor capital expenditure reimbursements under operating leases; plus: property insurance proceeds and proceeds from refundable entrance fees, net of refunds; less: non-development capital expenditures and payment of financing lease obligations. Non-development capital expenditures are comprised of corporate and community-level capital expenditures, including those related to maintenance, renovations, upgrades, and other major building infrastructure projects for the Company's communities and is presented net of lessor reimbursements. Non-development capital expenditures do not include capital expenditures for: community expansions, major community redevelopment and repositioning projects, and the development of new communities.

The Company believes that presentation of Adjusted Free Cash Flow as a liquidity measure is useful to investors because (i) it is one of the metrics used by the Company's management for budgeting and other planning purposes, to review the Company's historic and prospective sources of operating liquidity, and to review the Company's ability to service its outstanding indebtedness, pay dividends to stockholders, engage in share repurchases, and make capital expenditures, including development capital expenditures; and (ii) it provides an indicator to management to determine if adjustments to current spending decisions are needed.

Adjusted Free Cash Flow has material limitations as a liquidity measure, including: (i) it does not represent cash available for dividends, share repurchases, or discretionary expenditures since certain non-discretionary expenditures, including mandatory debt principal payments, are not reflected in this measure; (ii) the cash portion of non-recurring charges related to gain/loss on facility lease termination generally represent charges/gains that may significantly affect the Company's liquidity; and (iii) the impact of timing of cash expenditures, including the timing of non-development capital expenditures, limits the usefulness of the measure for short-term comparisons.

The table below reconciles the Company's Adjusted Free Cash Flow from its net cash provided by (used in) operating activities.


Three Months Ended

(in thousands)

March 31, 2021


December 31, 2020


March 31, 2020

Net cash provided by (used in) operating activities

$

(23,857)



$

73,499



$

57,479


Net cash provided by (used in) investing activities

(3,806)



(81,147)



(247,927)


Net cash provided by (used in) financing activities

(35,562)



(20,279)



347,250


Net increase (decrease) in cash, cash equivalents, and
restricted cash

$

(63,225)



$

(27,927)



$

156,802








Net cash provided by (used in) operating activities

$

(23,857)



$

73,499



$

57,479


Changes in prepaid insurance premiums financed with notes
payable

12,985



(5,823)



17,434


Changes in assets and liabilities for lessor capital expenditure
reimbursements under operating leases

(7,563)



(8,602)



(4,088)


Non-development capital expenditures, net

(27,450)



(34,643)



(60,556)


Payment of financing lease obligations

(4,789)



(4,556)



(5,087)


Adjusted Free Cash Flow (1)

$

(50,674)



$

19,875



$

5,182




(1)

Adjusted Free Cash Flow includes transaction and organizational restructuring costs of $1.9 million, $1.8 million, and $2.0 million for the three months ended March 31, 2021, December 31, 2020, and March 31, 2020, respectively. Additionally, Adjusted Free Cash Flow includes:


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SOURCE Brookdale Senior Living Inc.