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Brookdale Announces Third Quarter 2020 Results

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NASHVILLE, Tenn. , Nov. 4, 2020 /PRNewswire/ -- Brookdale Senior Living Inc. (NYSE: BKD) ("Brookdale" or the "Company") announced results for the quarter ended September 30, 2020.

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

THIRD QUARTER 2020 HIGHLIGHTS

  • During the quarter, the Company completed a lease restructuring transaction with Ventas, Inc. ("Ventas") and reduced its expected aggregate cash rent by approximately $500 million over the remaining, unchanged initial lease term ending December 31, 2025 .

  • Liquidity was $491 million at September 30, 2020 , and the Company completed two refinancing transactions during the quarter resulting in no significant debt maturities until 2022.

  • 95% of the Company's communities are open for move-ins on October 31, 2020 , reflecting the Company's strong infection control protocols and focus on testing.

  • Same community RevPOR increased sequentially by 60 basis points.

Lucinda ("Cindy") Baier, Brookdale's President and CEO, said, "During the third quarter, we built upon our prior successful efforts to effectively navigate through the pandemic with operational improvements and transactions to strengthen our financial position. We've been an agile, learning organization and continue our efforts to innovate for our residents' enjoyment and to welcome more seniors into our communities. On October 31, 2020 , 95% of our communities were open to move-ins and approximately 1% of our residents had current COVID-19 positive test results. During the quarter, we completed the most significant lease improvement in our history as well as two important refinancing transactions. We have no large debt maturities until 2022. We have been focused on both mission and margin and I am very proud of our associates' dedication to the health and well-being of our residents, patients and each other."

SUMMARY OF THIRD QUARTER RESULTS

Consolidated

The table below presents a summary of consolidated operating results.



Year-Over-Year
Increase / (Decrease)


Change Attributable To:

($ in millions)

3Q 2020

3Q 2019

Amount

Percent


COVID-19

Transactions

Lease Standard

Resident fee revenue

$

700.8


$

801.2


$

(100.4)


(12.5)

%


See note (1)

$

(20.0)


$

(8.0)



Management fee revenue

$

5.7


$

13.6


$

(7.9)


(58.1)

%



$

(7.1)




Other operating income

$

10.8



$

10.8


NM



$

10.8





Facility operating expense

$

570.5


$

615.7


$

(45.2)


(7.3)

%


$

24.5


$

(19.3)


$

(14.0)



General and administrative
  expense

$

54.1


$

56.4


$

(2.3)


(4.1)

%






Net income (loss)

$

(125.0)


$

(78.5)


$

46.5


59.2

%


See note (1)

See note (1)

$

6.0


(1)

Adjusted EBITDA (2)

$

(64.0)


$

80.4


$

(144.4)


NM



See note (1)

$

(102.1)


$

6.0



One-time cash lease
  payment

$

119.2


$


$

119.2


NM




$

119.2


$



Adjusted EBITDA,
  excluding one-time
  cash lease payment

$

55.2


$

80.4


$

(25.2)


(31.3)

%


See note (1)

$

17.1


$

6.0





(1)       

Estimated lost resident fee revenue attributable to COVID-19 was $91.6 million for the third quarter of 2020. The change in net income (loss) attributable to COVID-19 and transactions and the change in Adjusted EBITDA attributable to COVID-19 are not presented as certain impacts are not available without unreasonable effort. The change attributable to the lease standard represents the 2019 impact of the timing of the revenue and cost recognition associated with residency agreements related to the adoption of ASC 842.

(2)       

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 measures, and other important information regarding the use of the Company's non-GAAP financial measures. Unless otherwise indicated, Adjusted EBITDA for the third quarter of 2020 includes the $119.2 million one-time cash lease payment made to Ventas in connection with the Company's lease restructuring transaction effective July 26, 2020 ("one-time cash lease payment").

 

  • Resident fee revenue.

  • Management fee revenue. The decrease was primarily due to the transition of management arrangements on 64 net communities since July 1, 2019 , generally for management arrangements on certain former unconsolidated ventures in which the Company sold its interest and interim management arrangements on formerly leased communities.

  • Other operating income.

  • Facility operating expense.

  • General and administrative expense. The decrease in general and administrative expense was primarily attributable to a reduction in the Company's travel costs as it intentionally scaled back such activities and a reduction in the Company's corporate headcount, as it scaled its general and administrative costs in connection with community dispositions. The decrease was partially offset by a $2.3 million increase in transaction and organizational restructuring costs compared to the prior year quarter.

  • Net income (loss). The decrease in net income (loss) compared to the prior year quarter was primarily attributable to the revenue and facility operating expense factors previously discussed.

  • Adjusted EBITDA. The decrease in Adjusted EBITDA compared to the prior year quarter was primarily attributable to the $119.2 million one-time cash lease payment, as well as the revenue and facility operating expense factors previously discussed.

  • COVID-19 Impact.

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. (3)




Year-Over-Year
Increase / (Decrease)


Sequential
Increase / (Decrease)

($ in millions, except RevPAR and RevPOR)

3Q 2020

3Q 2019

Amount

Percent

2Q 2020

Amount

Percent

RevPAR

$

3,821


$

4,141


$

(320)


(7.7)%

$

3,979


$

(158)


(4.0)%

Weighted average occupancy

75.6

%

84.8

%

(920)

 bps

n/a

79.1

%

(350)

 bps

n/a

RevPOR

$

5,057


$

4,885


$

172


3.5%

$

5,028


$

29


0.6%

Facility operating expense

$

435.1


$

434.0


$

1.1


0.3%

$

462.0


$

(26.9)


(5.8)%



(3)       

The same community portfolio includes operating results and data for 631 communities utilizing the Company's methodology for determining same store communities, which excludes 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, certain communities that have expansion, redevelopment, and repositioning projects that are anticipated to be under construction in the current year, and certain communities that have experienced a casualty event that significantly impacts their operations. To aid in comparability, same community operating results and data exclude (i) hurricane and other natural disaster expense of $2.3 million, $0.2 million, and $1.2 million for the third and second quarters of 2020 and third quarter of 2019, respectively, and (ii) for the 2019 period the additional resident fee revenue and facility operating expense recognized as a result of the application of the lease accounting standard ASC 842 of approximately $7.3 million and $12.8 million, respectively. As presented herein, same community facility operating expense includes the direct costs incurred to respond to the COVID-19 pandemic.

 

  • Resident fees. Same community resident fees decreased $47.4 million to $565.9 million attributable to the decrease in occupancy, partially offset by the increase in RevPOR.

  • Facility operating expense.


Health Care Services



Increase / (Decrease)

($ in millions)

3Q 2020

3Q 2019

Amount

Percent

Resident fee revenue

$

89.9


$

111.8


$

(21.9)


(19.6)

%

Other operating income

5.9



5.9


NM


Facility operating expense

94.3


107.0


(12.7)


(11.9)

%

 

  • 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, Adjusted Free Cash Flow, and liquidity.



Increase / (Decrease)

($ in millions)

3Q 2020

3Q 2019

Amount

Percent

Net cash provided by (used in) operating activities

$

(77.2)


$

69.2


$

(146.4)


NM

Adjusted Free Cash Flow (4)

(114.3)


(13.6)


(100.7)


NM

 



Increase / (Decrease)

($ in millions)

September 30, 2020

June 30, 2020

Amount

Percent

Unrestricted cash and cash equivalents

$

354.6


$

452.4


$

(97.8)


(21.6)

%

Marketable securities

136.1


109.9


26.2


23.8

%

Availability on secured credit facility


37.9


(37.9)


NM


Total Liquidity

$

490.7


$

600.2


$

(109.5)


(18.2)

%



(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. Adjusted Free Cash Flow for the third quarter of 2020 includes the $119.2 million one-time cash lease payment.

 

  • Net cash provided by (used in) operating activities.  The year-over-year decrease in net cash provided by (used in) operating activities was primarily attributable to the $119.2 million one-time cash lease payment and a decrease in same community revenue compared to the prior year period.

  • Adjusted Free Cash Flow. The decrease in Adjusted Free Cash Flow compared to the prior year third quarter was attributable to the decrease in net cash provided by (used in) operating activities partially offset by a $36.2 million decrease in non-development capital expenditures, net compared to the prior year period.

  • Total Liquidity.  Total liquidity as of September 30, 2020, decreased $109 .5 million from June 30, 2020 , primarily attributable to the $119.2 million one-time cash lease payment. On August 31, 2020 , the Company terminated its $250 million revolving credit facility and obtained $266.9 million of non-recourse mortgage financing on 16 communities, most of which had secured the credit facility prior to its termination. At the closing, the Company repaid the $166.4 million outstanding principal amount under the credit facility, together with accumulated interest, without payment of any termination fee or penalty, and the Company cash collateralized the letters of credit outstanding under the credit facility.

TRANSACTION AND FINANCING UPDATE

  • Ventas Transaction: On July 26, 2020 , the Company entered into definitive agreements with Ventas to restructure its 120 community (10,174 units) triple-net master lease arrangements, as further described in the press release issued on July 27, 2020 . In addition, the Company conveyed to Ventas five communities in full satisfaction of $78.4 million principal amount of indebtedness secured by the communities and manages the communities subsequent to the closing. Pursuant to the multi-part transaction, the Company paid a $119.2 million one-time cash payment to Ventas on July 27, 2020 and reduced the Company's annual rent under the amended and restated master lease.

  • Refinancing Activity: During August and September 2020 , the Company closed on two non-recourse mortgage debt financing transactions totaling $487.4 million , with the proceeds used to refinance the majority of the Company's remaining 2021 maturities and repay the outstanding amount on the Company's former revolving credit facility as described above.

  • Community Dispositions: During the third quarter of 2020, the Company completed the sale of one owned community (297 units) for total cash proceeds of $32.6 million , net of transaction costs, and terminated the lease on two communities (148 units).

  • Leased Community Acquisition: On August 31, 2020 , the Company acquired one formerly leased community (103 units) pursuant to the exercise of a purchase option for a purchase price of $25.0 million .

OUTLOOK

Given the unprecedented nature of COVID-19 and rapidly changing developments, the Company will continue to be agile and adjust its local community response to help protect its residents, associates, and patients. As the Company cannot predict the ultimate impact of the duration, severity, and breadth of the pandemic for the United States , key factors that may impact the Company's financial performance and liquidity for the remainder of 2020 include:

  • The Company's consolidated weighted average occupancy was 73.8% for October 2020 and 95% of communities were accepting move-ins on October 31, 2020 . On average, the Company has seen move-in volume at communities with fewer restrictions fare better than those with higher restrictions.

  • The Company is pleased that it has welcomed new residents into its communities during the pandemic and is monitoring the current resurgence. Barring a severe resurgence, the Company expects the sequential decline in quarterly consolidated occupancy will again moderate.

  • The Company expects to increase its marketing investments for communities that are able to welcome visitors and move-ins to drive future resident awareness and referrals.

  • Communities impacted by COVID-19 infections are likely to incur increased costs for the use of a higher volume of PPE and medical supplies and other related expenses.

  • The Company's census for Health Care Services is expected to move directionally with elective medical procedure and hospital discharge trends and the occupancy trend within the Company's senior housing segment.

  • The Company has applied for additional grants made available pursuant to the Provider Relief Fund's Phase 2 General Distribution, generally related to the Company's senior housing segments. The amount of such grants are expected to be based on 2% of a portion of the Company's 2018 revenues from patient care, and the Company expects to receive up to approximately $50 million of grants from this allocation. There can be no assurance that the Company will qualify for, or receive, grants in the amount it expects.

  • In response to the COVID-19 pandemic, the Company delayed or canceled a number of elective capital expenditure projects. As a result, the Company expects the fourth quarter non-development capital expenditures, net of anticipated lessor reimbursements, to be approximately $35 million , and development capital expenditures to be approximately $5 million . For the full year, this reflects a $50 million and $15 million reduction to pre-pandemic non-development and development plans, respectively.

  • The Company expects that changes in working capital will require the use of approximately $25 million of cash in the fourth quarter of 2020.

SUPPLEMENTAL INFORMATION

The Company will post on its website at www.brookdale.com/investor supplemental information relating to the Company's third quarter 2020 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 third quarter of 2020 on November 5, 2020 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, 2020 by dialing (855) 859-2056 (from within the U.S.) or (404) 537-3406 (from outside of the U.S.) and referencing access code "3699832".

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 726 communities in 44 states and the ability to serve approximately 65,000 residents as of September 30, 2020. The Company also offers a range of home health, hospice, and outpatient therapy services to over 17,000 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 lease accounting standard 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 lease accounting standard 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 that are not historical statements of fact and those regarding the Company's intent, belief or expectations, including those related to the COVID-19 pandemic. 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 and availability 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 our 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, 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, and other expenses, the impact of COVID-19 on the Company's ability to complete financings, refinancings, or other transactions (including dispositions) or to generate sufficient cash flow to cover required interest and lease payments and to satisfy financial and other covenants in the Company's debt and lease documents, increased regulatory requirements, including unfunded mandatory testing, increased enforcement actions resulting from COVID-19, including those that may limit the Company's collection 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 markets, consumer confidence or the equity markets and unemployment among family members, which may be adversely impacted by the pandemic; 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, oversupply and increased competition; disruptions in the financial markets, including those related to the pandemic, 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, including changes related to the pandemic, 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; 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, which may be adversely affected by the pandemic; 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 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 potential phasing out of LIBOR which may increase the costs of the Company's debt obligations; increased competition for or a shortage of personnel or 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, to prevent a cybersecurity attack or breach, or to comply with applicable privacy and consumer protection laws, including HIPAA; the Company's inability to achieve or maintain profitability; 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 the Company; 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; terminations, early or otherwise, or non-renewal of management agreements; 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 its living spaces, which may be adversely impacted by the pandemic; 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 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, which may be adversely impacted by the pandemic; environmental contamination at any of the Company's communities; failure to comply with existing environmental laws; costs to defend against, or 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 ("SEC"), 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, the Company expressly disclaims any obligation to release publicly any updates or revisions to any 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)

2020


2019


2020


2019

Revenue and other operating income








Resident fees

$

700,771



$

801,237



$

2,215,107



$

2,412,579


Management fees

5,669



13,564



120,460



44,756


Reimbursed costs incurred on behalf of managed communities

90,775



194,148



315,003



613,115


Other operating income

10,765





37,458




Total revenue and other operating income

807,980



1,008,949



2,688,028



3,070,450










Expense








Facility operating expense (excluding facility depreciation and
   amortization of $81,854, $86,213, $253,126, and $261,110,
   respectively)

570,530



615,717



1,765,046



1,792,057


General and administrative expense (including non-cash stock-
   based compensation expense of $6,136, $5,929, $18,212,
   and $18,315, respectively)

54,138



56,409



161,251



170,296


Facility operating lease expense

51,620



67,253



178,480



203,610


Depreciation and amortization

87,821



93,550



271,713



284,462


Asset impairment

8,213



2,094



96,729



6,254


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







2,006


Costs incurred on behalf of managed communities

90,775



194,148



315,003



613,115


Total operating expense

863,097



1,029,171



2,788,222



3,071,800


Income (loss) from operations

(55,117)



(20,222)



(100,194)



(1,350)










Interest income

607



2,162



4,305



8,059


Interest expense:








Debt

(36,908)



(44,344)



(117,645)



(135,180)


Financing lease obligations

(11,908)



(16,567)



(37,082)



(49,959)


Amortization of deferred financing costs and debt discount

(1,730)



(1,167)



(4,601)



(3,132)


Gain (loss) on debt modification and extinguishment, net

(7,917)



(2,455)



11,107



(5,194)


Equity in earnings (loss) of unconsolidated ventures

(293)



(2,057)



(863)



(3,574)


Gain (loss) on sale of assets, net

2,209



579



374,019



2,723


Other non-operating income (loss)

948



3,763



4,598



9,950


Income (loss) before income taxes

(110,109)



(80,308)



133,644



(177,657)


Benefit (provision) for income taxes

(14,884)



1,800



(7,560)



488


Net income (loss)

(124,993)



(78,508)



126,084



(177,169)


Net (income) loss attributable to noncontrolling interest

18



50



55



646


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

$

(124,975)



$

(78,458)



$

126,139



$

(176,523)










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








Basic

$

(0.68)



$

(0.42)



$

0.69



$

(0.95)


Diluted

$

(0.68)



$

(0.42)



$

0.69



$

(0.95)










Weighted average common shares outstanding:








Basic

183,244



185,516



183,535



186,130


Diluted

183,244



185,516



183,668



186,130


Condensed Consolidated Balance Sheets


(in thousands)

September 30, 2020


December 31, 2019

Cash and cash equivalents

$

354,621



$

240,227


Marketable securities

136,136



68,567


Restricted cash

35,206



26,856


Accounts receivable, net

113,820



133,613


Assets held for sale

8,324



42,671


Prepaid expenses and other current assets, net

73,977



84,241


Total current assets

722,084



596,175


Property, plant and equipment and leasehold intangibles, net

5,127,167



5,109,834


Operating lease right-of-use assets

843,265



1,159,738


Other assets, net

315,411



328,686


Total assets

$

7,007,927



$

7,194,433






Current liabilities

$

719,010



$

1,046,972


Long-term debt, less current portion

3,857,820



3,215,710


Financing lease obligations, less current portion

547,922



771,434


Operating lease obligations, less current portion

874,657



1,277,178


Other liabilities

164,348



184,414


Total liabilities

6,163,757



6,495,708


Total Brookdale Senior Living Inc. stockholders' equity

841,856



696,356


Noncontrolling interest

2,314



2,369


Total equity

844,170



698,725


Total liabilities and equity

$

7,007,927



$

7,194,433




Condensed Consolidated Statements of Cash Flows



Nine Months Ended September 30,

(in thousands)

2020


2019

Cash Flows from Operating Activities




Net income (loss)

$

126,084



$

(177,169)


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




Loss (gain) on debt modification and extinguishment, net

(11,107)



5,194


Depreciation and amortization, net

276,314



287,594


Asset impairment

96,729



6,254


Equity in (earnings) loss of unconsolidated ventures

863



3,574


Distributions from unconsolidated ventures from cumulative share of net earnings

766



2,388


Amortization of entrance fees

(1,606)



(1,172)


Proceeds from deferred entrance fee revenue

118



2,902


Deferred income tax (benefit) provision

(2,727)



(1,216)


Operating lease expense adjustment

(132,276)



(13,626)


Loss (gain) on sale of assets, net

(374,019)



(2,723)


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



2,006


Non-cash stock-based compensation expense

18,212



18,315


Non-cash management contract termination gain



(640)


Other

(1,965)



(7,173)


Changes in operating assets and liabilities:




Accounts receivable, net

19,678



(6,756)


Prepaid expenses and other assets, net

27,504



50,387


Prepaid insurance premiums financed with notes payable

(5,823)



(5,875)


Trade accounts payable and accrued expenses

17,002



(21,970)


Refundable fees and deferred revenue

64,763



(24,007)


Operating lease assets and liabilities for lessor capital expenditure reimbursements

13,640



12,043


Net cash provided by (used in) operating activities

132,150



128,330


Cash Flows from Investing Activities




Change in lease security deposits and lease acquisition deposits, net

3,399



(430)


Purchase of marketable securities

(255,373)



(137,786)


Sale and maturities of marketable securities

188,750



104,000


Capital expenditures, net of related payables

(140,690)



(206,385)


Acquisition of assets, net of related payables and cash received

(472,193)



(453)


Investment in unconsolidated ventures

(1,809)



(4,294)


Distributions received from unconsolidated ventures



7,454


Proceeds from sale of assets, net

331,103



53,430


Proceeds from notes receivable

2,849



34,109


Net cash provided by (used in) investing activities

(343,964)



(150,355)


Cash Flows from Financing Activities




Proceeds from debt

961,833



318,491


Repayment of debt and financing lease obligations

(518,700)



(404,152)


Proceeds from line of credit

166,381




Repayment of line of credit

(166,381)




Purchase of treasury stock, net of related payables

(18,123)



(18,401)


Payment of financing costs, net of related payables

(18,141)



(6,357)


Payments of employee taxes for withheld shares

(4,012)



(3,242)


Other

335



827


Net cash provided by (used in) financing activities

403,192



(112,834)


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

191,378



(134,859)


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

301,697



450,218


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

$

493,075



$

315,359


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 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, 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.

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
September 30,


Nine Months Ended
September 30,

(in thousands)

2020


2019


2020


2019

Net income (loss)

$

(124,993)



$

(78,508)



$

126,084



$

(177,169)


Provision (benefit) for income taxes

14,884



(1,800)



7,560



(488)


Equity in (earnings) loss of unconsolidated ventures

293



2,057



863



3,574


Loss (gain) on debt modification and extinguishment, net

7,917



2,455



(11,107)



5,194


Loss (gain) on sale of assets, net

(2,209)



(579)



(374,019)



(2,723)


Other non-operating (income) loss

(948)



(3,763)



(4,598)



(9,950)


Interest expense

50,546



62,078



159,328



188,271


Interest income

(607)



(2,162)



(4,305)



(8,059)


Income (loss) from operations

(55,117)



(20,222)



(100,194)



(1,350)


Depreciation and amortization

87,821



93,550



271,713



284,462


Asset impairment

8,213



2,094



96,729



6,254


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







2,006


Operating lease expense adjustment

(117,322)



(4,814)



(132,276)



(13,626)


Non-cash stock-based compensation expense

6,136



5,929



18,212



18,315


Transaction and organizational restructuring costs

6,250



3,910



11,599



5,005


Adjusted EBITDA(1)

$

(64,019)



$

80,447



$

165,783



$

301,066


$100.0 million management termination fee





(100,000)




$119.2 million one-time cash lease payment

119,180





119,180




Adjusted EBITDA, excluding $100.0 million management termination fee and $119.2 million one-time cash lease payment

$

55,161



$

80,447



$

184,963



$

301,066




(1)

Adjusted EBITDA includes:


$6.0 million and $19.0 million, respectively, of a negative, non-recurring net impact for the three and nine months ended September 30, 2019 from the application of the lease accounting standard effective January 1, 2019


$100.0 million benefit for the nine months ended September 30, 2020 for the management agreement termination fee payment received from Healthpeak Properties, Inc. ("Healthpeak") in connection with closing of the multi-part transaction on January 31, 2020


$119.2 million for the three and nine months ended September 30, 2020 for the one-time cash lease payment


$10.8 million and $37.5 million, respectively, benefit for the three and nine months ended September 30, 2020 of Provider Relief Funds and other government grants recognized in other operating income

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; (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.

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
September 30,


Nine Months Ended
September 30,

(in thousands)

2020


2019


2020


2019

Net cash provided by (used in) operating activities

$

(77,169)



$

69,211



$

132,150



$

128,330


Net cash provided by (used in) investing activities

(48,554)



(70,056)



(343,964)



(150,355)


Net cash provided by (used in) financing activities

96,668



(8,755)



403,192



(112,834)


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

$

(29,055)



$

(9,600)



$

191,378



$

(134,859)










Net cash provided by (used in) operating activities

$

(77,169)



$

69,211



$

132,150



$

128,330


Distributions from unconsolidated ventures from
cumulative share of net earnings

(766)



(858)



(766)



(2,388)


Changes in prepaid insurance premiums financed with
notes payable

(5,841)



(6,215)



5,823



5,875


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

(3,131)



(11,043)



(13,640)



(12,043)


Non-development capital expenditures, net

(22,872)



(59,121)



(104,949)



(180,187)


Payment of financing lease obligations

(4,548)



(5,549)



(14,312)



(16,502)


Adjusted Free Cash Flow (1)

$

(114,327)



$

(13,575)



$

4,306



$

(76,915)




(1)

Adjusted Free Cash Flow includes transaction and organizational restructuring costs of $6.3 million and $3.9 million for the three months ended September 30, 2020 and 2019, respectively, and $11.6 million and $5.0 million for the nine months ended September 30, 2020 and 2019, respectively. Additionally, Adjusted Free Cash Flow includes:




For the three months ended September 30, 2020:


$119.2 million one-time cash lease payment


$2.5 million benefit from accelerated/advanced Medicare payments received


$4.4 million benefit from Provider Relief Funds and other government grants accepted


$23.6 million benefit from payroll taxes deferred




For the nine months ended September 30, 2020:


$119.2 million one-time cash lease payment


$100.0 million benefit from management agreement termination fee payment received from Healthpeak


$87.5 million benefit from accelerated/advanced Medicare payments received


$38.6 million benefit from Provider Relief Funds and other government grants accepted


$50.1 million benefit from payroll taxes deferred

Cision
Cision

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SOURCE Brookdale Senior Living Inc.