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Brookdale Announces Third Quarter 2019 Results

NASHVILLE, Tenn., Nov. 4, 2019 /PRNewswire/ -- Brookdale Senior Living Inc. (BKD) ("Brookdale" or the "Company") announced results for the quarter ended September 30, 2019.

(PRNewsfoto/Brookdale Senior Living Inc.)

THIRD QUARTER 2019 HIGHLIGHTS

  • Same community weighted average occupancy improved 70 basis points on a sequential basis, more than double the industry's increase. Both same community Independent Living and Assisted Living and Memory Care exceeded the industry's occupancy increase on a sequential basis.
  • Revenue per available unit (RevPAR) and revenue per occupied unit (RevPOR) increased year-over-year 1.8% and 2.8%, respectively, on a same community basis.
  • Positive year-over-year same community move-in growth continued for a second consecutive quarter.
  • Refinanced the majority of the first half 2020 debt maturities, reducing annual interest expense by approximately $2.5 million.
  • On October 1st, entered into mutually-beneficial agreements with HCP, Inc. (now known as Healthpeak Properties, Inc.) ("HCP") which will unlock the value of the Company's unconsolidated CCRC Venture, increase the size of the Company's owned real estate portfolio, and reduce complexity of operations.

Lucinda ("Cindy") Baier, Brookdale's President and CEO, said, "Our efforts are geared toward accelerating operational improvement to deliver strong long-term financial performance. Within this strategy, the first priority was to drive topline growth, and I'm extremely pleased that the investments we made drove great sequential occupancy growth and translated into strong senior housing revenue. Today we are also outlining the building blocks of our five-year strategic plan that ultimately sets Brookdale up for industry-leading long-term growth."

SUMMARY OF THIRD QUARTER RESULTS

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. (1)

($ in millions, except RevPAR
and RevPOR)


Year-Over-Year

Increase / (Decrease)


Sequential

Increase / (Decrease)

3Q 2019

3Q 2018

Amount

Percent

2Q 2019

Amount

Percent

Resident fees

$

629.2


$

618.1


$

11.1


1.8%

$

627.7


$

1.5


0.2%

Facility operating expense

$

450.2


$

420.8


$

29.4


7.0%

$

430.8


$

19.4


4.5%

RevPAR

$

4,129


$

4,056


$

73


1.8%

$

4,120


$

9


0.2%

Weighted average occupancy

84.5

%

85.3

%

(80)

bps

n/a

83.8

%

70

bps

n/a

RevPOR

$

4,886


$

4,755


$

131


2.8%

$

4,917


$

(31)


(0.6)%









Consolidated

The table below presents a summary of operating results.



Increase / (Decrease)


Change Attributable To:

($ in millions)

3Q 2019

3Q 2018

Amount

Percent


Transactions

New Lease Standard

Resident fee and 
     management fee revenue

$

814.8


$

858.7


$

(43.9)


(5.1)

%


$

(69.0)


$

8.0



Facility operating expense

615.7


607.1


8.6


1.4

%


(47.5)


14.0



Net income (loss)

(78.5)


(37.1)


41.4


NM


See note (2)

$

(6.0)(2)



Adjusted EBITDA (3)

80.4


128.1


(47.7)


(37.2)

%


(18.1)


(6.0)












(1) The same community portfolio includes 644 communities utilizing the Company's methodology for determining same store communities which generally excludes assets held for sale, communities acquired or disposed since the beginning of the prior year, and certain communities that have undergone or are undergoing expansion, redevelopment, and repositioning projects. Operating results and data presented on a same community basis reflect results and data of the same store communities and, for the 2019 periods, exclude the additional resident fee revenue and facility operating expense recognized as a result of application of the new lease accounting standard under ASC 842 of approximately $4.8 million and $10.8 million, respectively, for the second quarter and approximately $7.3 million and $12.8 million, respectively, for the third quarter.

(2) The change in net income (loss) attributable to transactions is not presented as certain impacts are not available without unreasonable effort. The change attributable to the new lease standard represents the impact of the timing of the revenue and cost recognition associated with residency agreements related to the adoption of the new lease standard.

(3) 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. During the first quarter of 2019, the Company modified its definition of Adjusted EBITDA to exclude transaction and organizational restructuring costs. Amounts for all periods herein reflect application of the modified definition.

Summary of Third Quarter Results - Consolidated

  • Transactions and lease standard impact:
  • Resident fee and management fee revenue:
  • Facility operating expense:
  • Net income (loss):
  • Adjusted EBITDA: The decrease was primarily attributable to the impact of transactions completed since the beginning of the prior year period, higher labor expense, and application of the new lease standard effective January 1, 2019.

Same Community Senior Housing (IL, AL/MC, and CCRCs)

  • Resident fees:
  • Facility operating expense:

Health Care Services



Increase / (Decrease)

($ in millions)

3Q 2019

3Q 2018

Amount

Percent

Resident fee revenue





Home health

$

80.6


$

81.7


$

(1.1)


(1.3)

%

Hospice

25.3


20.6


4.7


22.8

%

Outpatient therapy

5.9


6.0


(0.1)


(1.7)

%

Facility operating expense

107.0


98.8


8.2


8.3

%






  • Resident fee revenue:
  • Facility operating expense:

Management Services



Increase / (Decrease)

($ in millions)

3Q 2019

3Q 2018

Amount

Percent

Management fees

$

13.6


$

18.5


$

(4.9)


(26.5)

%






  • Management fees: The decrease in management fees was primarily attributable to the transition of management arrangements on 117 net communities since July 1, 2018, generally for interim management arrangements on formerly leased or owned communities and management arrangements on certain former unconsolidated ventures in which the Company sold its interest.

LIQUIDITY

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



Increase / (Decrease)

($ in millions)

3Q 2019

3Q 2018

Amount

Percent

Net cash provided by (used in)
operating activities

$

69.2


$

71.9


$

(2.7)


(3.8)

%

Adjusted Free Cash Flow (4)

(13.6)


9.7


(23.3)


  NM

(4) 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. During the first quarter of 2019, the Company modified its definition of Adjusted Free Cash Flow to no longer adjust net cash provided by (used in) operating activities for changes in working capital items other than changes in prepaid insurance premiums financed with notes payable and lease liability for lease termination and modification. Amounts for all periods herein reflect application of the modified definition.

  • Net cash provided by (used in) operating activities:
  • Adjusted Free Cash Flow:
  • Total Liquidity:

SUMMARY OF THIRD QUARTER RESULTS OF UNCONSOLIDATED VENTURES

The Company's proportionate share of Adjusted EBITDA of unconsolidated ventures declined 13.1% versus the third quarter of the prior year primarily as a result of the Company's sale of its interest in two unconsolidated ventures since the beginning of the prior year period. The Company's proportionate share of Adjusted Free Cash Flow of unconsolidated ventures increased 28.6% versus the prior year quarter primarily as a result of an increase in cash proceeds from entrance fee sales for the unconsolidated entry fee CCRC Venture ("CCRC Venture").

TRANSACTION UPDATE

The closings of the various pending and expected transactions described below are, or will be, subject to the satisfaction of various closing conditions, including (where applicable) the receipt of regulatory approvals. However, there can be no assurance that the transactions will close or, if they do, when the actual closings will occur.

  • Assets Held for Sale:  As of September 30, 2019, six communities were classified as held for sale, resulting in $60.4 million being recorded as assets held for sale and $30.8 million of mortgage debt being included in the current portion of long-term debt within the condensed consolidated balance sheet with respect to such communities. This debt is expected to be repaid with the proceeds from the sales.
  • Management Transitions: The Company transitioned management on 15 communities to new operators during the third quarter of 2019, most of which were managed under management arrangements on certain former unconsolidated ventures in which the Company sold its interest. Management fees for the third quarter of 2019 include approximately $8.5 million of management fees attributable to communities for which the Company's management agreements were terminated during such period or are expected to terminate in the next approximately 12 months, including management agreements on communities owned by the CCRC Venture, interim management arrangements on formerly leased communities, and management arrangements on certain former unconsolidated ventures in which the Company sold its interest.
  • CCRC Venture and HCP Master Lease Transactions: On October 1st, the Company announced it has entered into definitive agreements with HCP pursuant to which the Company will exit its CCRC Venture through sale of its equity interest and sale of certain unconsolidated entry fee CCRCs, terminate the unconsolidated entry fee CCRC management agreements, acquire 18 communities currently leased from HCP, and amend and restate the master lease for the continuing 24 communities leased from HCP.  The Company expects the closings of the sale of its equity interest, acquisition of communities, and amendment and restatement of the master lease to occur in the first quarter of 2020.  After acquisition of the 18 communities, the net cash proceeds from the transactions are expected to be approximately $208 million. The Company is evaluating using a portion of net proceeds for opportunistic share repurchases and elective debt pay downs. Upon completion of the dispositions, the Company will have eliminated substantially all of its unconsolidated venture interests.
  • Leased Community Acquisitions: The Company provided notice of its intent to exercise the purchase option with respect to eight leased communities (336 units) and expects the purchase to close in the first quarter of 2020.
  • Refinancing Activity: On August 29, 2019, the Company obtained $160.3 million of debt secured by the non-recourse first mortgages on five communities. Seventy-five percent of the principal amount bears interest at a fixed rate of 3.35%, and the remaining twenty-five percent of the principal amount bears interest at a variable rate equal to the 30-day LIBOR plus a margin of 217 basis points. The debt matures in September 2029. The $160.3 million of proceeds from the financing were utilized to repay $139.2 million of outstanding mortgage debt maturing in 2020 and 2023.

2019 OUTLOOK

Based on results year-to-date, the Company reiterates its full year 2019 guidance:

($ in millions)


Full Year 2019 Guidance

Adjusted EBITDA


$400 - $425

Adjusted Free Cash Flow


($100) - ($80)

Non-development capital expenditures


Approx. $250

The Company's proportionate share of Adjusted EBITDA of
unconsolidated ventures


$30 - $40

The Company's proportionate share of Adjusted Free Cash Flow
of unconsolidated ventures


$10 - $20




Key Guidance Assumptions:

  • Includes the impact of transactions closed prior to the date hereof and the expected impact of the Company's plans to dispose of communities, including communities classified as assets held for sale as of September 30, 2019 and several other communities being marketed, and expected lease and management terminations.
  • Except for the foregoing transactions, the Company's guidance excludes the impact of any future acquisition, disposition, financing or other transaction activity.
  • Adjusted EBITDA guidance includes the estimated non-recurring, non-cash net impact of approximately negative $27 million resulting from the Company's adoption of the new lease accounting standard effective January 1, 2019. The lease accounting change has no impact on the Adjusted Free Cash Flow guidance.

Reconciliations of the non-GAAP financial measures included in the foregoing guidance to the most comparable GAAP financial measures are not available without unreasonable effort due to the inherent difficulty in forecasting the timing or amounts of items required to reconcile Adjusted EBITDA, Adjusted Free Cash Flow and the Company's proportionate share of Adjusted EBITDA and Adjusted Free Cash Flow of unconsolidated ventures from the Company's net income (loss), the Company's net cash provided by (used in) operating activities, and the unconsolidated ventures' net income (loss) and net cash provided by (used in) operating activities, as applicable. Variability in the timing or amounts of items required to reconcile each measure may have a significant impact on the Company's future GAAP results.

SUPPLEMENTAL INFORMATION

The Company will post on its website at www.brookdale.com/investor supplemental information relating to the Company's third quarter 2019 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 of its third quarter ended September 30, 2019 on November 5, 2019 at 9:00 AM ET. The conference call can be accessed by dialing (866) 900-2996 (from within the U.S.) or (706) 643-2685 (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 November 19, 2019 by dialing (855) 859-2056 (from within the U.S.) or (404) 537-3406 (from outside of the U.S.) and referencing access code "4141507".

ABOUT BROOKDALE SENIOR LIVING

Brookdale Senior Living Inc. is the leading operator of senior living communities throughout the United States. The Company is committed to providing senior living solutions primarily within properties that are designed, purpose-built, and operated to provide the highest-quality service, care, and living accommodations for residents. Brookdale operates and manages independent living, assisted living, memory care, and continuing care retirement communities, with 794 communities in 45 states and the ability to serve approximately 75,000 residents as of September 30, 2019. The Company also offers a range of home health, hospice, and outpatient therapy services to over 20,000 patients as of that date. Brookdale's stock is traded on the New York Stock Exchange under the ticker symbol BKD.

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 and entrance fee amortization, and, for the 2019 periods, the additional resident fee revenue recognized as a result of the application of the new lease accounting standard under ASC 842), 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 and entrance fee amortization, and, for the 2019 periods, the additional resident fee revenue recognized as a result of the application of the new lease accounting standard under ASC 842), 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 conference 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 regarding the Company's guidance and any other 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, the Company 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, events which adversely affect the ability of seniors to afford resident fees and entrance fees, including downturns in the economy, national or local housing markets, consumer confidence or the equity markets and unemployment among 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 continued new senior housing construction and development, oversupply and increased competition; disruptions in the financial markets that affect the Company's ability to obtain financing or extend or refinance debt as it matures and the Company's financing costs; 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, interest rates and tax rates; 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 indebtedness and long-term leases on its liquidity; 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 borrowing base calculations and the Company's consolidated fixed charge coverage ratio on availability under its revolving credit facility; increased competition for or a shortage of personnel, wage pressures resulting from increased competition, low unemployment levels, minimum wage increases and changes in overtime laws, and union activity; failure to maintain the security and functionality of the Company's information systems or to prevent a cybersecurity attack or breach; the Company's ability to complete pending or expected disposition, acquisition or other transactions 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; the Company's ability to obtain additional capital on terms acceptable to it; 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; delays in obtaining regulatory approvals; risks associated with the lifecare benefits offered to residents of certain of the Company's entrance fee CCRCs; terminations, early or otherwise, or non-renewal of management agreements; conditions of housing markets, regulatory changes and acts of nature in geographic areas where the Company is concentrated; terminations of the Company's resident agreements and vacancies in the living spaces it leases; departures of key officers and potential disruption caused by changes in management; risks related to the implementation of the Company's strategy, including initiatives undertaken to execute on its strategic priorities and their effect on the Company's results; actions of activist stockholders, including a proxy contest; market conditions and capital allocation decisions that may influence the Company's determination from time to time whether to purchase any shares under its existing share repurchase program and the Company's ability to fund any repurchases;  the Company's ability to maintain consistent quality control; a decrease in the overall demand for senior housing; 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; 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; as well as other risks detailed from time to time in the Company's filings with the Securities and Exchange Commission, including those contained 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 of these forward-looking statements to reflect any change in its 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
September 30,


Nine Months Ended
September 30,

(in thousands, except per share data)

2019


2018


2019


2018

Revenue








Resident fees

$

801,237



$

840,179



$

2,412,579



$

2,642,414


Management fees

13,564



18,528



44,756



54,280


Reimbursed costs incurred on behalf of managed communities

194,148



261,355



613,115



765,802


Total revenue

1,008,949



1,120,062



3,070,450



3,462,496










Expense








Facility operating expense (excluding facility depreciation and
amortization of $86,213, $101,527, $261,110, and $310,011,
respectively)

615,717



607,076



1,792,057



1,866,477


General and administrative expense (including non-cash stock-
based compensation expense of $5,929, $6,035, $18,315,
and $20,710, respectively)

56,409



58,796



170,296



203,138


Facility operating lease expense

67,253



70,392



203,610



232,752


Depreciation and amortization

93,550



110,980



284,462



341,351


Goodwill and asset impairment

2,094



5,500



6,254



451,966


Loss (gain) on facility lease termination and modification, net



2,337



2,006



148,804


Costs incurred on behalf of managed communities

194,148



261,355



613,115



765,802


Total operating expense

1,029,171



1,116,436



3,071,800



4,010,290


Income (loss) from operations

(20,222)



3,626



(1,350)



(547,794)










Interest income

2,162



1,654



8,059



7,578


Interest expense:








Debt

(44,344)



(46,891)



(135,180)



(141,585)


Financing lease obligations

(16,567)



(20,896)



(49,959)



(66,216)


Amortization of deferred financing costs and debt discount

(1,130)



(829)



(2,920)



(7,113)


Change in fair value of derivatives

(37)



(10)



(212)



(153)


Debt modification and extinguishment costs

(2,455)



(33)



(5,194)



(77)


Equity in earnings (loss) of unconsolidated ventures

(2,057)



(1,340)



(3,574)



(6,907)


Gain (loss) on sale of assets, net

579



9,833



2,723



76,586


Other non-operating income (loss)

3,763



(17)



9,950



8,074


Income (loss) before income taxes

(80,308)



(54,903)



(177,657)



(677,607)


Benefit (provision) for income taxes

1,800



17,763



488



17,724


Net income (loss)

(78,508)



(37,140)



(177,169)



(659,883)


Net (income) loss attributable to noncontrolling interest

50



19



646



86


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

$

(78,458)



$

(37,121)



$

(176,523)



$

(659,797)










Basic and diluted net income (loss) per share attributable to Brookdale Senior Living Inc. common stockholders

$

(0.42)



$

(0.20)



$

(0.95)



$

(3.52)










Weighted average shares used in computing basic and diluted net income (loss) per share

185,516



187,675



186,130



187,383


 

Condensed Consolidated Balance Sheets

(in thousands)

September 30,
2019


December 31,
2018

Cash and cash equivalents

$

241,391



$

398,267


Marketable securities

49,790



14,855


Restricted cash

33,305



27,683


Accounts receivable, net

140,661



133,905


Assets held for sale

60,404



93,117


Prepaid expenses and other current assets, net

102,949



106,189


Total current assets

628,500



774,016


Property, plant and equipment and leasehold intangibles, net

5,185,681



5,275,427


Operating lease right-of-use assets

1,221,578




Other assets, net

338,444



417,817


Total assets

$

7,374,203



$

6,467,260






Current liabilities

$

1,058,060



$

773,331


Long-term debt, less current portion

3,228,606



3,345,754


Financing lease obligations, less current portion

795,198



851,341


Operating lease obligations, less current portion

1,319,758




Other liabilities

178,785



478,421


Total liabilities

6,580,407



5,448,847


Total Brookdale Senior Living Inc. stockholders' equity

788,366



1,018,903


Noncontrolling interest

5,430



(490)


Total equity

793,796



1,018,413


Total liabilities and equity

$

7,374,203



$

6,467,260



 

Condensed Consolidated Statements of Cash Flows


Nine Months Ended
September 30,

(in thousands)

2019


2018

Cash Flows from Operating Activities




Net income (loss)

$

(177,169)



$

(659,883)


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




Debt modification and extinguishment costs

5,194



77


Depreciation and amortization, net

287,382



348,464


Goodwill and asset impairment

6,254



451,966


Equity in (earnings) loss of unconsolidated ventures

3,574



6,907


Distributions from unconsolidated ventures from cumulative share of net earnings

2,388



2,159


Amortization of deferred gain



(3,269)


Amortization of entrance fees

(1,172)



(1,220)


Proceeds from deferred entrance fee revenue

2,902



2,507


Deferred income tax (benefit) provision

(1,216)



(19,180)


Operating lease expense adjustment

(13,626)



(14,656)


Change in fair value of derivatives

212



153


Loss (gain) on sale of assets, net

(2,723)



(76,586)


Loss (gain) on facility lease termination and modification, net

2,006



135,760


Non-cash stock-based compensation expense

18,315



20,710


Non-cash interest expense on financing lease obligations



9,151


Non-cash management contract termination gain

(640)



(5,649)


Other

(7,173)



(154)


Changes in operating assets and liabilities:




Accounts receivable, net

(6,756)



(1,127)


Prepaid expenses and other assets, net

50,387



28,118


Prepaid insurance premiums financed with notes payable

(5,875)



(6,244)


Trade accounts payable and accrued expenses

(21,970)



(9,661)


Refundable fees and deferred revenue

(24,007)



(4,239)


Operating lease assets and liabilities for lessor capital expenditure reimbursements

12,043




Operating lease assets and liabilities for lease termination



(33,596)


Net cash provided by (used in) operating activities

128,330



170,508


Cash Flows from Investing Activities




Change in lease security deposits and lease acquisition deposits, net

(430)



(664)


Purchase of marketable securities

(137,786)




Sale of marketable securities

104,000



293,273


Capital expenditures, net of related payables

(206,385)



(169,349)


Acquisition of assets, net of related payables and cash received

(453)



(271,771)


Investment in unconsolidated ventures

(4,294)



(8,946)


Distributions received from unconsolidated ventures

7,454



10,782


Proceeds from sale of assets, net

53,430



131,912


Proceeds from notes receivable

34,109



1,580


Property insurance proceeds



156


Net cash provided by (used in) investing activities

(150,355)



(13,027)


Cash Flows from Financing Activities




Proceeds from debt

318,491



279,919


Repayment of debt and financing lease obligations

(404,152)



(501,946)


Proceeds from line of credit



200,000


Repayment of line of credit



(200,000)


Purchase of treasury stock, net of related payables

(18,401)




Payment of financing costs, net of related payables

(6,357)



(3,341)


Proceeds from refundable entrance fees, net of refunds



(316)


Payments for lease termination



(12,548)


Payments of employee taxes for withheld shares

(3,242)



(2,844)


Other

827



1,147


Net cash provided by (used in) financing activities

(112,834)



(239,929)


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

(134,859)



(82,448)


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

450,218



282,546


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

$

315,359



$

200,098


 

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. 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 reconciliations included below 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, the Company's assessment of options and alternatives to enhance stockholder value, 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 and retention costs. During the first quarter of 2019, the Company modified its definition of Adjusted EBITDA to exclude transaction and organizational restructuring costs, and amounts for all periods herein reflect application of the modified definition.

The Company's proportionate share of Adjusted EBITDA of unconsolidated ventures is calculated based on its equity ownership percentage and in a manner consistent with the Company's definition of Adjusted EBITDA for its consolidated entities. The Company's investments in unconsolidated ventures are accounted for under the equity method of accounting and, therefore, the Company's proportionate share of Adjusted EBITDA of unconsolidated ventures does not represent the Company's equity in earnings or loss of unconsolidated ventures on its consolidated statement of operations.

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. The Company believes that presentation of its proportionate share of Adjusted EBITDA of unconsolidated ventures is useful to investors for similar reasons with respect to the unconsolidated ventures.

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 or facility lease termination and modification, debt modification and extinguishment costs, 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
September 30,


Nine Months Ended
September 30,

(in thousands)

2019


2018


2019


2018

Net income (loss)

$

(78,508)



$

(37,140)



$

(177,169)



$

(659,883)


Provision (benefit) for income taxes

(1,800)



(17,763)



(488)



(17,724)


Equity in (earnings) loss of unconsolidated ventures

2,057



1,340



3,574



6,907


Debt modification and extinguishment costs

2,455



33



5,194



77


Loss (gain) on sale of assets, net

(579)



(9,833)



(2,723)



(76,586)


Other non-operating (income) loss

(3,763)



17



(9,950)



(8,074)


Interest expense

62,078



68,626



188,271



215,067


Interest income

(2,162)



(1,654)



(8,059)



(7,578)


Income (loss) from operations

(20,222)



3,626



(1,350)



(547,794)


Depreciation and amortization

93,550



110,980



284,462



341,351


Goodwill and asset impairment

2,094



5,500



6,254



451,966


Loss (gain) on facility lease termination and modification,
net



2,337



2,006



148,804


Operating lease expense adjustment

(4,814)



(2,487)



(13,626)



(14,656)


Amortization of deferred gain



(1,090)





(3,269)


Non-cash stock-based compensation expense

5,929



6,035



18,315



20,710


Transaction and organizational restructuring costs

3,910



3,221



5,005



25,383


Adjusted EBITDA(1)

$

80,447



$

128,122



$

301,066



$

422,495


(1) Adoption of the new lease accounting standard effective January 1, 2019 will have a non-recurring impact on the Company's full-year 2019 Adjusted EBITDA. Adjusted EBITDA for the three and nine months ended September 30, 2019 includes a negative net impact of approximately $6.0 million and $19.0 million, respectively, from such adoption.

The table below reconciles the Company's proportionate share of Adjusted EBITDA of unconsolidated ventures from net income (loss) of such unconsolidated ventures. For purposes of this presentation, amounts for each line item represent the aggregate amounts of such line items for all of the Company's unconsolidated ventures.


Three Months Ended
September 30,


Nine Months Ended
September 30,

(in thousands)

2019


2018


2019


2018

Net income (loss)

$

(4,156)



$

(6,674)



$

(7,189)



$

(42,753)


Provision (benefit) for income taxes

18



64



65



507


Debt modification and extinguishment costs



13



21



131


Loss (gain) on sale of assets, net

23







2,837


Other non-operating (income) loss

78



(5)



78



(1,875)


Interest expense

7,042



12,849



21,770



62,858


Interest income

(897)



(830)



(2,574)



(2,416)


Income (loss) from operations

2,108



5,417



12,171



19,289


Depreciation and amortization

17,108



22,135



50,937



123,257


Asset impairment



63



302



336


Operating lease expense adjustment







8


Adjusted EBITDA of unconsolidated ventures

$

19,216



$

27,615



$

63,410



$

142,890










Brookdale's proportionate share of Adjusted EBITDA
of unconsolidated ventures

$

9,800



$

11,280



$

31,997



$

42,140


 

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 and modification, 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 is 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 does not include capital expenditures for community expansions and major community redevelopment and repositioning projects, including the Company's Program Max initiative, and the development of new communities. During the first quarter of 2019, the Company modified its definition of Adjusted Free Cash Flow to no longer adjust net cash provided by (used in) operating activities for changes in working capital items other than prepaid insurance premiums financed with notes payable and lease liability for lease termination and modification, and amounts for all periods herein reflect application of the modified definition.

The Company's proportionate share of Adjusted Free Cash Flow of unconsolidated ventures is calculated based on the Company's equity ownership percentage and in a manner consistent with the Company's definition of Adjusted Free Cash Flow for its consolidated entities. The Company's investments in its unconsolidated ventures are accounted for under the equity method of accounting and, therefore, the Company's proportionate share of Adjusted Free Cash Flow of unconsolidated ventures does not represent cash available to the Company's consolidated business except to the extent it is distributed to the Company.

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; (ii) it is used as a metric in the Company's performance-based compensation programs; and (iii) it provides an indicator to management to determine if adjustments to current spending decisions are needed. The Company believes that presentation of its proportionate share of Adjusted Free Cash Flow of unconsolidated ventures is useful to investors for similar reasons with respect to the unconsolidated ventures and, to the extent such cash is not distributed to the Company, it generally represents cash used or to be used by the ventures for the repayment of debt, investing in expansions or acquisitions, reserve requirements, or other corporate uses by such ventures, and such uses reduce the Company's potential need to make capital contributions to the ventures of the Company's proportionate share of cash needed for such items.

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 and modification 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. In addition, the Company's proportionate share of Adjusted Free Cash Flow of unconsolidated ventures has material limitations as a liquidity measure because it does not represent cash available directly for use by the Company's consolidated business except to the extent actually distributed to the Company, and the Company does not have control, or the Company shares control in determining, the timing and amount of distributions from the Company's unconsolidated ventures and, therefore, the Company may never receive such cash.

 

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


Three Months Ended
September 30,


Nine Months Ended
September 30,

(in thousands)

2019


2018


2019


2018

Net cash provided by (used in) operating activities

$

69,211



$

71,924



$

128,330



$

170,508


Net cash provided by (used in) investing activities

(70,056)



(24,539)



(150,355)



(13,027)


Net cash provided by (used in) financing activities

(8,755)



(37,949)



(112,834)



(239,929)


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

$

(9,600)



$

9,436



$

(134,859)



$

(82,448)










Net cash provided by (used in) operating activities

$

69,211



$

71,924



$

128,330



$

170,508


Distributions from unconsolidated ventures from cumulative share of net earnings

(858)



(1,012)



(2,388)



(2,159)


Changes in prepaid insurance premiums financed with notes payable

(6,215)



(6,181)



5,875



6,244


Changes in operating lease liability related to lease termination







33,596


Cash paid for loss on facility operating lease termination
and modification, net







13,044


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

(11,043)





(12,043)




Non-development capital expenditures, net

(59,121)



(41,275)



(180,187)



(130,692)


Property insurance proceeds







156


Payment of financing lease obligations

(5,549)



(13,370)



(16,502)



(53,271)


Proceeds from refundable entrance fees, net of refunds



(368)





(316)


Adjusted Free Cash Flow (1)

$

(13,575)



$

9,718



$

(76,915)



$

37,110


(1) The calculation of Adjusted Free Cash Flow includes transaction costs of $3.9 million and $5.0 million for the three and nine months ended September 30, 2019, respectively, and transaction and organizational restructuring costs of $3.2 million and $25.4 million for the three and nine months ended September 30, 2018, respectively.

The table below reconciles the Company's proportionate share of Adjusted Free Cash Flow of unconsolidated ventures from net cash provided by (used in) operating activities of such unconsolidated ventures. For purposes of this presentation, amounts for each line item represent the aggregate amounts of such line items for all of the Company's unconsolidated ventures.


Three Months Ended
September 30,


Nine Months Ended
September 30,

(in thousands)

2019


2018


2019


2018

Net cash provided by (used in) operating activities

$

29,397



$

24,497



$

84,778



$

122,269


Net cash provided by (used in) investing activities

(12,097)



(14,623)



(29,527)



(45,011)


Net cash provided by (used in) financing activities

(14,538)



(9,702)



(39,775)



(62,361)


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

$

2,762



$

172



$

15,476



$

14,897










Net cash provided by (used in) operating activities

$

29,397



$

24,497



$

84,778



$

122,269


Non-development capital expenditures, net

(11,993)



(14,822)



(29,674)



(53,750)


Property insurance proceeds







1,535


Proceeds from refundable entrance fees, net of refunds

(5,763)



(2,500)



(19,396)



(12,535)


Adjusted Free Cash Flow of unconsolidated ventures

$

11,641



$

7,175



$

35,708



$

57,519










Brookdale's proportionate share of Adjusted Free Cash Flow of unconsolidated ventures

$

5,938



$

4,618



$

18,280



$

20,004


 

Cision

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