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Brookdale Announces Second Quarter 2017 Results

12:24 EDT 7 Aug 2017 | PR Newswire

NASHVILLE, Tenn., Aug. 7, 2017 /PRNewswire/ --

SECOND QUARTER 2017 HIGHLIGHTS:

  • GAAP net loss increased to $46.3 million for the second quarter of 2017 compared to $35.5 million for the second quarter of 2016.
  • Adjusted EBITDA(1) decreased to $160.3 million for the second quarter of 2017 compared to $201.5 million for the second quarter of 2016. Excluding transaction and strategic project costs of $3.9 million, Adjusted EBITDA for the second quarter of 2017 was $164.2 million.
  • Second quarter 2017 net cash provided by operating activities increased 23.8% from the second quarter of 2016, to $133.1 million.
  • Adjusted Free Cash Flow(1) for the second quarter of 2017 decreased $4.9 million to $40.0 million, compared to the second quarter of 2016. Brookdale's proportionate share of Adjusted Free Cash Flow of unconsolidated ventures for the second quarter of 2017 decreased $1.9 million to $7.9 million, compared to the second quarter of 2016.
  • During the quarter, the Company completed the disposition of two communities and terminated the leases for seven communities as part of the Company's portfolio optimization initiative. The portfolio optimization disposition activity reduced year-over-year revenue and Adjusted EBITDA, while improving cash flow.
  • Brookdale's liquidity position increased by more than $100.0 million from the first quarter of 2017.

(1) Adjusted EBITDA and Adjusted Free Cash Flow are financial measures not calculated in accordance with GAAP.  See "Reconciliation of Non-GAAP Financial Measures" below for the Company's definitions of its non-GAAP financial measures, reconciliations of such measures to their most comparable GAAP financial measures and other important information regarding the use of the Company's non-GAAP financial measures.

Brookdale Senior Living Inc. (NYSE: BKD) ("Brookdale" or the "Company") announced results for the quarter ended June 30, 2017.

Andy Smith, Brookdale's President and CEO, said, "During the second quarter we continued to be challenged by a difficult macro-environment with a large number of new competitive openings across our markets. We are focused on defending our market position while putting the Company in a better position for 2018.  While our performance for the quarter was generally in line with the industry, we are pleased with the progress that we are making to improve our market positioning through our segmentation initiative, maximize our RevPAR through more sophisticated pricing tools, and build the best workforce in the industry through improved training and development. We also continue to improve our financial position with increased liquidity and by executing on our plan to refinance our near-term debt maturities."

Second Quarter Financial Results

Total revenue for the second quarter of 2017 was $1.19 billion compared to $1.26 billion for the prior year period. Resident fees were $934.1 million for the second quarter of 2017, a decrease of 11.4% from the second quarter of 2016.  The decrease in resident fees was primarily a result of disposition activity, through asset sales and lease terminations of 130 communities (10,964 units), since the beginning of the prior year period.  Second quarter monthly RevPAR(2) for the consolidated senior housing portfolio was $3,873, an increase of 0.8% from the second quarter of 2016, driven by a year-over-year increase in RevPOR(2) of 2.3% and a decrease in weighted average unit occupancy of 120 basis points. The sequential quarterly decline in weighted average unit occupancy was 70 basis points.

(2)  RevPAR, or average monthly senior housing resident fee revenues per available unit, is defined by the Company as resident fee revenues, excluding Brookdale Ancillary Services segment revenue and entrance fee amortization, for the corresponding portfolio for the period, 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 revenues per occupied unit, is defined by the Company as resident fee revenues, excluding Brookdale Ancillary Services segment revenue and entrance fee amortization, for the corresponding portfolio for the period, 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.

Facility operating expenses for the second quarter of 2017 were $642.4 million, a decrease of 7.3% from the second quarter of 2016.  Combined segment operating margin was 31.2% for the second quarter of 2017 versus 34.3% for the second quarter of 2016. The decrease in facility operating expenses was primarily due to disposition activity, through asset sales and lease terminations.

GAAP net loss for the second quarter of 2017 was $46.3 million, versus a net loss of $35.5 million for the second quarter of 2016.  Weighted average shares outstanding were 186.2 million for the second quarter of 2017 compared with weighted average shares outstanding of 185.8 million for the prior year quarter.

Net cash provided by operating activities for the second quarter of 2017 was $133.1 million, an increase of $25.6 million, or 23.8%, compared with the second quarter of 2016, driven primarily by a $12.8 million decrease in integration, transaction-related and strategic project costs compared to the prior year period.

Non-GAAP Financial Measures

Adjusted EBITDA and Adjusted Free Cash Flow are financial measures that are not calculated in accordance with GAAP.  The Company strongly urges you to review the information under "Reconciliation of Non-GAAP Financial Measures" below for the Company's definitions of each of these non-GAAP financial measures, a detailed description of why the Company believes such measures are useful, the limitations of each measure, and a reconciliation of Adjusted EBITDA from the Company's net income (loss), a reconciliation of the Company's Adjusted Free Cash Flow from the Company's net cash provided by (used in) operating activities, and a reconciliation of the Company's proportionate share of Adjusted Free Cash Flow of unconsolidated ventures from such ventures' net cash provided by (used in) operating activities.  The Company changed its definition and calculation of Adjusted EBITDA when it reported results for the second quarter of 2016.  Prior period amounts of Adjusted EBITDA presented herein have been recast to conform to the new definition.  See "Reconciliation of Non-GAAP Financial Measures" below for a description of such changes to the definition of Adjusted EBITDA.

Adjusted EBITDA decreased 20.4% to $160.3 million in the second quarter of 2017, compared to $201.5 million for the second quarter of 2016. Excluding transaction and strategic project costs of $3.9 million, Adjusted EBITDA for the second quarter of 2017 was $164.2 million. The decrease in Adjusted EBITDA is primarily due to disposition activity, through asset sales and lease terminations, since the beginning of the prior year period. Additionally, increases in insurance expense and community labor expenses at the communities operated during both full periods contributed to the decline in Adjusted EBITDA. 

The Company's Adjusted Free Cash Flow for the second quarter of 2017 decreased $4.9 million to $40.0 million compared to $44.9 million for the second quarter of 2016. Included in the second quarter 2017 Adjusted Free Cash Flow is $0.7 million of debt modification costs related to our debt refinancing transactions. The Company's proportionate share of Adjusted Free Cash Flow of unconsolidated ventures was $7.9 million for the second quarter of 2017 compared with $9.9 million for the prior year period.

Operating Activities

The Company reports information on five segments.  Three segments (Retirement Centers, Assisted Living and CCRCs – Rental) constitute the Company's consolidated senior housing portfolio.  The Ancillary Services segment includes the Company's outpatient therapy, home health and hospice services.  The Management Services segment includes the services provided to unconsolidated communities that are operated under management agreements.

Senior Housing

Revenue for the consolidated senior housing portfolio was $823.9 million for the second quarter of 2017, a decrease of 11.5% from the second quarter of 2016. Facility operating expenses were $545.3 million for the second quarter of 2017, a decrease of 7.4% from the second quarter of 2016.  Operating income for the consolidated senior housing portfolio decreased by 18.7% from the second quarter of 2016, to $278.6 million for the second quarter of 2017.  The decreases in resident fees and facility operating expenses during the three months ended June 30, 2017 were primarily due to disposition activity, through asset sales and lease terminations, of 130 communities (10,964 units) since the beginning of the prior year period.

Same community revenue for the consolidated senior housing portfolio for the three months ended June 30, 2017 remained consistent over the corresponding period in 2016.  Same community RevPAR increased 0.1% in the second quarter of 2017 from the second quarter of 2016, driven by an increase in same community RevPOR of 1.8%, which was offset by a decline in weighted average unit occupancy of 150 basis points.   Consolidated same community facility operating expenses for the second quarter of 2017 increased by 5.7% over the second quarter of 2016, driven primarily by an increase in community labor expenses arising from wage rate increases and an $11.3 million increase in insurance expense related to positive changes in the second quarter of 2016 to estimates in general liability and professional liability and workers compensation expenses.  As a result, same community operating income for the consolidated senior housing portfolio for the second quarter of 2017 decreased by 9.2% from the second quarter of 2016, to $275.9 million.

Brookdale Ancillary Services

Revenue for the Company's ancillary services segment decreased $13.1 million, or 10.7%, to $110.2 million for the second quarter of 2017 versus the prior year second quarter, and facility operating expenses for the second quarter of 2017 decreased $7.2 million, or 6.9%, over the second quarter of 2016. As a result, ancillary services operating income for the second quarter of 2017 was $13.1 million, a decrease of 31.2% versus the second quarter of 2016, with operating margin decreasing to 11.9% from a 15.4% margin for the second quarter of 2016. The decrease in ancillary services operating income was primarily the result of a decrease in home health service volume and lower Medicare reimbursement rates.

Liquidity

Total liquidity for the Company was $546.0 million at June 30, 2017, an increase of $119.3 million from March 31, 2017.  Liquidity at June 30, 2017 included $151.5 million of unrestricted cash and cash equivalents, $29.8 million of marketable securities, and $364.7 million of availability on the Company's secured credit facility.

Portfolio Optimization Activity

The Company continues to actively explore opportunities to optimize its portfolio through disposing of owned and leased communities and restructuring leases in order to simplify and streamline its business, to increase the quality and durability of cash flow, and to reduce debt and lease leverage.

The Company began the second quarter of 2017 with 16 communities (1,508 units) classified as assets held for sale.  During the quarter, the Company completed the disposition of two of these communities (236 units) and terminated the leases for seven communities (710 units).

As of June 30, 2017, 14 communities (1,272 units) were classified as assets held for sale with a carrying value of $91.0 million, and $60.5 million of associated mortgage debt, which is included in the current portion of long-term debt.  The closings of the sales of the 14 remaining communities held for sale are subject to receipt of regulatory approvals and satisfaction of other customary closing conditions, and are expected to occur in 2017; however, there can be no assurance that the transactions will close or, if they do, when the actual closings will occur. Pursuant to a previously disclosed agreement with HCP, Inc., the Company continues to expect to terminate the leases on an additional 25 communities during 2017.

Refinancing Activity

In June 2017, the Company obtained a $54.7 million supplemental loan, secured by first mortgages on seven communities. The loan bears interest at a fixed rate of 4.69% and matures on March 1, 2022. Proceeds from the loan added to the Company's liquidity.

In July 2017, the Company completed the refinancing of two existing loan portfolios, secured by a first mortgage on 22 communities. The $221.3 million of proceeds from the refinancing were utilized to pay off $188.1 million and $13.6 million of mortgage debt maturing in April 2018 and January 2021, respectively. The mortgage facility has a 10 year term and 70% of the principal amount bears interest at a fixed rate of 4.81% and the remaining 30% of the principal amount bears interest at a variable rate.

As of June 30, 2017, the current portion of long-term debt includes the $302.5 million carrying amount of the Company's 2.75% convertible senior notes due June 15, 2018. Although the Company estimates that it will have sufficient liquidity to settle the principal amount of $316.3 million of the convertible notes in cash at maturity, the Company currently anticipates obtaining additional liquidity in 2017 through refinancing of certain under-levered assets that have associated debt maturities arising in 2018 and 2022.  However, there can be no assurance that any such additional financing will be available or on terms that are acceptable to the Company.

Ongoing Review Process

As previously announced, Brookdale's Board and management team are working with legal and financial advisors in a process of exploring options and alternatives to create and enhance stockholder value.  That process is ongoing.

2017 Outlook

Based on results year-to-date, the Company reiterates its full year 2017 guidance for Adjusted EBITDA, excluding transaction and strategic project costs, to be in the range of $670 million to $710 million. The Company's previously-issued guidance for full year 2017 Adjusted Free Cash Flow of $140 million to $170 million excluded the potential impact of any refinancing and debt modification costs (including higher interest expense on refinanced debt) and costs associated with its ongoing evaluation of options and alternatives to create and enhance stockholder value, which remains appropriate guidance. Based on such costs incurred to date and projected for the remainder of 2017, the Company expects those costs to be approximately $30 million. Accordingly, the Company expects Adjusted Free Cash Flow for 2017 to be in the range of $110 million to $140 million including such costs. The actual amounts of such costs are subject to a number of assumptions and may differ significantly from the Company's current projection. The Company reiterates its full year 2017 guidance for the Company's proportionate share of Adjusted Free Cash Flow of unconsolidated ventures in the range of $25 million to $35 million.

The foregoing guidance excludes the potential impact of any future acquisition, disposition, and portfolio optimization activity other than the pending portfolio optimization transactions described above.  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 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 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 the Investor Relations section of the Company's website at www.brookdale.com supplemental information relating to the Company's second quarter 2017 results.  This information will also be furnished in a Form 8-K to be filed with the SEC. An updated Investor Presentation also will be posted.

Earnings Conference Call

Brookdale's management will conduct a conference call to review the financial results of its second quarter ended June 30, 2017 on Tuesday, August 8, 2017 at 10:00 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 the "Brookdale Senior Living Second Quarter Earnings Call."

A webcast of the conference call will be available to the public on a listen-only basis at www.brookdale.com.  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 for three months following the call.

For those who cannot listen to the live call, a replay will be available until 11:59 PM ET on August 21, 2017 by dialing (855) 859-2056 (from within the U.S.) or (404) 537-3406 (from outside of the U.S.) and referencing access code "60022877".  A copy of this earnings release is posted on the Investor Relations page of the Brookdale website (www.brookdale.com).

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 independent living, assisted living, and dementia-care communities and continuing care retirement centers, with approximately 1,039 communities in 46 states and the ability to serve approximately 102,000 residents as of June 30, 2017.  Through its ancillary services program, the Company also offers a range of outpatient therapy, home health and hospice services.  Brookdale's stock is traded on the New York Stock Exchange under the ticker symbol BKD.

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 our intent, belief or expectations, including, but not limited to, statements relating to the creation and enhancement of stockholder value, the evaluation of options and alternatives to create and enhance stockholder value, our strategy, our operational, sales, marketing and branding initiatives, our portfolio optimization and growth initiatives and our expectations regarding their effect on our results; our expectations regarding the economy, the senior living industry, senior housing construction, supply and competition, occupancy and pricing and the demand for senior housing; our expectations regarding our revenue, cash flow, operating income, expenses, capital expenditures, including expected levels and reimbursements and the timing thereof, development, expansion, renovation, redevelopment and repositioning opportunities, including Program Max opportunities, and their projected costs, cost savings and synergies, and our liquidity and leverage; our plans and expectations with respect to disposition, lease restructuring, financing, re-financing and venture transactions and opportunities (including assets currently held for sale and the pending transactions with HCP, Inc.), including the timing thereof and their effects on our results; our expectations regarding taxes, capital deployment and returns on invested capital, Adjusted EBITDA and Adjusted Free Cash Flow (as those terms are defined herein); our expectations regarding returns to stockholders, our share repurchase program and the payment of dividends; our ability to secure financing or repay, replace or extend existing debt at or prior to maturity; our ability to remain in compliance with all of our debt and lease agreements (including the financial covenants contained therein); our expectations regarding changes in government reimbursement programs and their effect on our results; our plans to expand our offering of ancillary services (therapy, home health and hospice); our plans to acquire additional operating companies, senior housing communities and ancillary services companies (including home health agencies); and our ability to anticipate, manage and address industry trends and their effect on our business. 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," "overestimate," "underestimate," "believe," "project," "predict," "continue," "plan," "target" or other similar words or expressions. These forward-looking statements are based on certain assumptions and expectations, and our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Although we believe that expectations reflected in any forward-looking statements are based on reasonable assumptions, we can give no assurance that our expectations will be attained and actual results and performance could differ materially from those projected. Factors which could have a material adverse effect on our 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 risk associated with the current global economic situation and its impact upon capital markets and liquidity; changes in governmental reimbursement programs; the risk of overbuilding and new supply; our inability to extend (or refinance) debt (including our credit and letter of credit facilities and our outstanding convertible notes) as it matures; the risk that we may not be able to satisfy the conditions precedent to exercising the extension options associated with certain of our debt agreements; events which adversely affect the ability of seniors to afford our monthly resident fees or entrance fees; the conditions of housing markets in certain geographic areas; our ability to generate sufficient cash flow to cover required interest and long-term lease payments; the effect of our indebtedness and long-term leases on our liquidity; the risk of loss of property pursuant to our mortgage debt and long-term lease obligations; the possibilities that changes in the capital markets, including changes in interest rates and/or credit spreads, or other factors could make financing more expensive or unavailable to us; our determination from time to time to purchase any shares under our share repurchase program; our ability to fund any repurchases; our ability to effectively manage our growth; our ability to maintain consistent quality control; delays in obtaining regulatory approvals; the risk that we may not be able to expand, redevelop and reposition our communities in accordance with our plans; our ability to complete acquisition, disposition, lease restructuring, financing, re-financing and venture transactions (including assets currently held for sale and the pending transactions with HCP, Inc.) 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; our ability to successfully integrate acquisitions; competition for the acquisition of assets; our ability to obtain additional capital on terms acceptable to us; a decrease in the overall demand for senior housing; our vulnerability to economic downturns; acts of nature in certain geographic areas; terminations of our resident agreements and vacancies in the living spaces we lease; early terminations or non-renewal of management agreements; increased competition for skilled personnel; increased wage pressure and union activity; departure of our key officers; increases in market interest rates; environmental contamination at any of our communities; failure to comply with existing environmental laws; an adverse determination or resolution of complaints filed against us; the cost and difficulty of complying with increasing and evolving regulation; as well as other risks detailed from time to time in our filings with the Securities and Exchange Commission, including our 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 our management's views as of the date of this press release and/or associated earnings conference call. We cannot guarantee future results, levels of activity, performance or achievements, and we expressly disclaim any obligation to release publicly any updates or revisions to any of these forward-looking statements to reflect any change in our expectations with regard thereto or change in events, conditions or circumstances on which any statement is based.


Condensed Consolidated Statements of Operations

(in thousands, except per share data)

Three Months Ended
June 30,

Six Months Ended
June 30,

2017

2016

2017

2016

Revenue

Resident fees

$

934,070

$

1,054,568

$

1,950,997

$

2,115,716

Management fees

22,442

18,186

38,336

34,966

Reimbursed costs incurred on behalf of managed communities

229,960

186,076

413,905

371,304

Total revenue

1,186,472

1,258,830

2,403,238

2,521,986

Expense

Facility operating expense (excluding depreciation and
  amortization of $105,673, $118,808, $220,552, and
  $232,911, respectively)

642,405

693,103

1,316,947

1,409,005

General and administrative expense (including non-cash
  stock-based compensation expense of $7,246, $8,994,
  $15,020 and $18,763, respectively)

67,090

90,695

132,650

183,316

Transaction costs

3,339

441

10,932

1,291

Facility lease expense

84,690

92,682

173,497

189,371

Depreciation and amortization

120,887

133,394

248,374

260,531

Asset impairment

1,559

4,152

22,265

7,527

Loss on facility lease termination

6,368

6,368

Costs incurred on behalf of managed communities

229,960

186,076

413,905

371,304

Total operating expense

1,156,298

1,200,543

2,324,938

2,422,345

Income from operations

30,174

58,287

78,300

99,641

Interest income

804

728

1,435

1,430

Interest expense:

Debt

(41,517)

(43,731)

(82,090)

(87,721)

Capital and financing lease obligations

(32,228)

(50,581)

(82,087)

(101,160)

Amortization of deferred financing costs and debt premium
(discount)

(2,692)

(2,288)

(5,283)

(4,598)

Change in fair value of derivatives

(39)

(4)

(85)

(28)

Debt modification and extinguishment costs

(693)

(186)

(754)

(1,296)

Equity in (loss) earnings of unconsolidated ventures

(4,570)

338

(3,589)

1,356

(Loss) gain on sale of assets, net

(547)

(198)

(1,150)

2,551

Other non-operating income

2,236

2,267

3,898

7,305

Income (loss) before income taxes

(49,072)

(35,368)

(91,405)

(82,520)

Benefit (provision) for income taxes

2,735

(123)

(81,293)

(1,788)

Net income (loss)

(46,337)

(35,491)

(172,698)

(84,308)

Net (income) loss attributable to noncontrolling interest

50

41

107

83

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

$

(46,287)

$

(35,450)

$

(172,591)

$

(84,225)

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

$

(0.25)

$

(0.19)

$

(0.93)

$

(0.45)

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

186,212

185,825

185,952

185,489


Condensed Consolidated Balance Sheets

(in thousands)

June 30, 2017

December 31, 2016

Cash and cash equivalents

$

151,528

$

216,397

Marketable securities

29,779

Cash and escrow deposits – restricted

38,440

32,864

Accounts receivable, net

129,748

141,705

Assets held for sale

91,013

97,843

Prepaid expenses and other current assets, net

120,416

130,695

Total current assets

560,924

619,504

Property, plant and equipment and leasehold intangibles, net

6,423,841

7,379,305

Other assets, net

1,208,027

1,218,878

Total assets

$

8,192,792

$

9,217,687

Current liabilities

$

1,077,548

$

731,142

Long-term debt, less current portion

3,042,123

3,413,998

Capital and financing lease obligations, less current portion

1,531,545

2,415,914

Other liabilities

625,674

578,901

Total liabilities

6,276,890

7,139,955

Total Brookdale Senior Living Inc. stockholders' equity

1,916,259

2,077,982

Noncontrolling interest

(357)

(250)

Total equity

1,915,902

2,077,732

Total liabilities and equity

$

8,192,792

$

9,217,687


Condensed Consolidated Statements of Cash Flows

(in thousands)

Six Months Ended
June 30,

2017

2016

Cash Flows from Operating Activities

Net income (loss)

$

(172,698)

$

(84,308)

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

Loss on extinguishment of debt, net

96

139

Depreciation and amortization, net

253,657

265,129

Asset impairment

22,265

7,527

Equity in loss (earnings) of unconsolidated ventures

3,589

(1,356)

Distributions from unconsolidated ventures from cumulative share of net
earnings

892

Amortization of deferred gain

(2,186)

(2,186)

Amortization of entrance fees

(2,030)

(1,939)

Proceeds from deferred entrance fee revenue

3,952

7,458

Deferred income tax provision

80,373

332

Change in deferred lease liability

(6,126)

3,412

Change in fair value of derivatives

85

28

Loss (gain) on sale of assets, net

1,150

(2,551)

Loss on facility lease termination

6,368

Non-cash stock-based compensation

15,020

18,763

Non-cash interest expense on financing lease obligations

10,021

13,014

Amortization of above market lease, net

(3,394)

(3,466)

Other

(2,969)

(3,597)

Changes in operating assets and liabilities:

Accounts receivable, net

11,957

5,439

Prepaid expenses and other assets, net

18,979

(16,845)

Accounts payable and accrued expenses

(47,982)

(23,133)

Tenant refundable fees and security deposits

(215)

38

Deferred revenue

9,070

(4,059)

Net cash provided by operating activities

199,874

177,839

Cash Flows from Investing Activities

Change in lease security deposits and lease acquisition deposits, net

5

(1,538)

Change in cash and escrow deposits — restricted

(1,721)

355

Purchase of marketable securities

(29,779)

Additions to property, plant and equipment and leasehold intangibles, net

(89,570)

(190,060)

Acquisition of assets, net of related payables and cash received

(400)

(12,157)

Investment in unconsolidated ventures

(186,166)

(3,733)

Distributions received from unconsolidated ventures

8,045

3,602

Proceeds from sale of assets, net

34,455

45,584

Property insurance proceeds

2,969

3,597

Other

947

(2,386)

Net cash used in investing activities

(261,215)

(156,736)

Cash Flows from Financing Activities

Proceeds from debt

92,571

192,128

Repayment of debt and capital and financing lease obligations

(89,204)

(128,427)

Proceeds from line of credit

894,500

Repayment of line of credit

(1,018,000)

Payment of financing costs, net of related payables

(523)

(641)

Proceeds from refundable entrance fees, net of refunds

(1,554)

(599)

Payment on lease termination

(552)

(9,250)

Payments of employee taxes for withheld shares

(5,320)

(968)

Other

1,054

1,178

Net cash used in financing activities

(3,528)

(70,079)

Net decrease in cash and cash equivalents

(64,869)

(48,976)

Cash and cash equivalents at beginning of period

216,397

88,029

Cash and cash equivalents at end of period

$

151,528

$

39,053

Reconciliation of Non-GAAP Financial Measures

This earnings release contains financial measures utilized by management to evaluate our operating performance and liquidity that are not calculated in accordance with U.S. generally accepted accounting principles ("GAAP").  Each of these measures, Adjusted EBITDA and Adjusted Free Cash Flow should not be considered in isolation from or as superior to or as a substitute for net income (loss), income (loss) from operations, net cash provided by (used in) operating activities, or other financial measures determined in accordance with GAAP.  We use these non-GAAP financial measures to supplement our GAAP results in order to provide a more complete understanding of the factors and trends affecting our business.  We strongly urge you to review the reconciliations of Adjusted EBITDA from the Company's net income (loss), the Company's Adjusted Free Cash Flow from the Company's net cash provided by (used in) operating activities, and the Company's proportionate share of Adjusted Free Cash Flow of unconsolidated ventures from such ventures' net cash provided by (used in) operating activities, along with our consolidated financial statements included herein.  We also strongly urge you not to rely on any single financial measure to evaluate our business.  We caution investors that amounts presented in accordance with our definitions of Adjusted EBITDA and Adjusted Free Cash Flow may not be comparable to similar measures disclosed by other companies, because not all companies calculate these non-GAAP measures in the same manner.

Adjusted EBITDA

We define Adjusted EBITDA as net income (loss) before: provision (benefit) for income taxes; non-operating (income) expense items; depreciation and amortization (including non-cash impairment charges); (gain) loss on sale or acquisition of communities (including gain (loss) on facility lease termination); straight-line lease expense (income), net of amortization of (above) below market rents; amortization of deferred gain; non-cash stock-based compensation expense; and change in future service obligation.

We changed our definition and calculation of Adjusted EBITDA when we reported results for the second quarter of 2016.  Prior period amounts of Adjusted EBITDA presented herein have been recast to conform to the new definition. The current definition of Adjusted EBITDA reflects the removal of the following adjustments to our net income (loss) that were used in the former definition: the addition of our proportionate share of Cash From Facility Operations of unconsolidated ventures and our entrance fee receipts, net of refunds, and the subtraction of our amortization of entrance fees.

We use Adjusted EBITDA to assess our overall operating performance. We believe this non-GAAP measure, as we have defined it, is helpful in identifying trends in our day-to-day performance because the items excluded have little or no significance on our day-to-day operations. This measure provides an assessment of controllable expenses and affords management the ability to make decisions which are expected to facilitate meeting current operating goals as well as achieve optimal operating performance. It provides an indicator for management to determine if adjustments to current spending decisions are needed.

Adjusted EBITDA provides us with a measure of operating performance, independent of items that are beyond the control of management in the short-term, such as the change in the liability for the obligation to provide future services under existing lifecare contracts, depreciation and amortization (including non-cash impairment charges), straight-line lease expense (income), taxation and interest expense associated with our capital structure. This metric measures our operating performance based on operational factors that management can impact in the short-term, namely revenues and the cost structure or expenses of the organization. Adjusted EBITDA is one of the metrics used by senior management and the board of directors to review the operating performance of the business on a regular basis. We believe that Adjusted EBITDA is also used by research analysts and investors to evaluate the performance of and value companies in our industry.

Adjusted EBITDA has limitations as an analytical tool. Material limitations in making the adjustments to our net income (loss) to calculate Adjusted EBITDA, and using this non-GAAP financial measure as compared to GAAP net income (loss), include:

  • the cash portion of interest expense, income tax (benefit) provision and non-recurring charges related to gain (loss) on sale of communities (or facility lease termination) and extinguishment of debt activities generally represent charges (gains), which may significantly affect our operating results; and
  • depreciation and amortization and asset impairment represent the wear and tear and/or reduction in value of our communities and other assets, which affects the services we provide to residents and may be indicative of future needs for capital expenditures.

We believe Adjusted EBITDA is useful to investors in evaluating our operating performance because it is helpful in identifying trends in our day-to-day performance since the items excluded have little or no significance to our day-to-day operations and it provides an assessment of our revenue and expense management.

The table below reconciles Adjusted EBITDA from net income (loss) for the three and six months ended June 30, 2017 and June 30, 2016 (in thousands):

Three Months Ended
June 30,(1)

Six Months Ended
June 30,(1)

2017

2016

2017

2016

Net income (loss)

$

(46,337)

$

(35,491)

$

(172,698)

$

(84,308)

(Benefit) provision for income taxes

(2,735)

123

81,293

1,788

Equity in loss (earnings) of unconsolidated ventures

4,570

(338)

3,589

(1,356)

Debt modification and extinguishment costs

693

186

754

1,296

Gain (loss) on sale of assets, net

547

198

1,150

(2,551)

Other non-operating income

(2,236)

(2,267)

(3,898)

(7,305)

Interest expense

76,476

96,604

169,545

193,507

Interest income

(804)

(728)

(1,435)

(1,430)

Income from operations

30,174

58,287

78,300

99,641

Depreciation and amortization

120,887

133,394

248,374

260,531

Asset impairment

1,559

4,152

22,265

7,527

Loss on facility lease termination

6,368

6,368

Straight-line lease (income) expense

(3,119)

(523)

(6,126)

3,412

Amortization of above market lease, net

(1,697)

(1,733)

(3,394)

(3,466)

Amortization of deferred gain

(1,093)

(1,093)

(2,186)

(2,186)

Non-cash stock-based compensation

7,246

8,994

15,020

18,763

Adjusted EBITDA

$

160,325

$

201,478

$

358,621

$

384,222

   (1) For the three and six months ended June 30, 2017, the calculation of Adjusted EBITDA includes $3.9 million and $11.6 million of transaction and
        strategic project costs, respectively. For the three and six months ended June 30, 2016, the calculation of Adjusted EBITDA includes $17.1 million
        and $37.1 million of integration, transaction and transaction-related and strategic project costs, respectively. Integration costs include transition costs
        associated with the Emeritus merger and organizational restructuring (such as severance and retention payments and recruiting expenses), third party
        consulting expenses directly related to the integration of Emeritus (in areas such as cost savings and synergy realization, branding and technology and
        systems work), and internal costs such as training, travel and labor, reflecting time spent by Company personnel on integration activities and projects.
        Transaction and transaction-related costs include third party costs directly related to the acquisition of Emeritus, other acquisition and disposition activity,
        community financing and leasing activity, our ongoing assessment of options and alternatives to enhance stockholder value and corporate capital
        structure assessment activities (including stockholder relations advisory matters), and are primarily comprised of legal, finance, consulting, professional
        fees and other third party costs. Strategic project costs include costs associated with certain strategic projects related to refining the Company's strategy,
        building out enterprise-wide capabilities for the post-merger platform (including the EMR roll-out project) and reducing costs and achieving synergies by
        capitalizing on scale.

Adjusted Free Cash Flow

We define Adjusted Free Cash Flow as net cash provided by (used in) operating activities before: changes in operating assets and liabilities; gain (loss) on facility lease termination; and distributions from unconsolidated ventures from cumulative share of net earnings; plus: proceeds from refundable entrance fees, net of refunds; and property insurance proceeds; less: lease financing debt amortization and Non-Development CapEx. Non-Development CapEx is comprised of corporate and community-level capital expenditures, including those related to maintenance, renovations, upgrades and other major building infrastructure projects for our communities. Non-Development CapEx does not include capital expenditures for community expansions and major community redevelopment and repositioning projects, including our Program Max initiative, and the development of new communities.  Amounts of Non-Development CapEx are presented net of lessor reimbursements received or anticipated to be received in the calculation of Adjusted Free Cash Flow.

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

We use Adjusted Free Cash Flow to assess our overall liquidity. This measure provides an assessment of controllable expenses and affords management the ability to make decisions which are expected to facilitate meeting current financial and liquidity goals as well as to achieve optimal financial performance. It provides an indicator for management to determine if adjustments to current spending decisions are needed. Adjusted Free Cash Flow measures our liquidity based on operational factors that management can impact in the short-term, namely the cost structure or expenses of the organization. Adjusted Free Cash Flow is one of the metrics used by our senior management and board of directors (i) to review our ability to service our outstanding indebtedness, including our credit facilities, (ii) to review our ability to pay dividends to stockholders or engage in share repurchases, (iii) to review our ability to make capital expenditures, (iv) for other corporate planning purposes and/or (v) in making compensation determinations for certain of our associates (including our named executive officers).

Adjusted Free Cash Flow has limitations as an analytical tool. Material limitations in making the adjustments to our net cash provided by (used in) operating activities to calculate Adjusted Free Cash Flow, and using this non-GAAP financial measure as compared to GAAP net cash provided by (used in) operating activities, include:

  • Adjusted Free Cash Flow does not represent cash available for dividends or discretionary expenditures, since we have mandatory debt service requirements and other non-discretionary expenditures not reflected in this measure; and
  • the cash portion of non-recurring charges related to gain (loss) on lease termination and extinguishment of debt activities generally represent charges (gains), which may significantly affect our financial results.

In addition, our proportionate share of Adjusted Free Cash Flow of unconsolidated ventures has limitations as an analytical tool because such measure does not represent cash available directly for use by our consolidated business except to the extent actually distributed to us, and we do not have control, or we share control in determining, the timing and amount of distributions from our unconsolidated ventures and, therefore, we may never receive such cash.

We believe Adjusted Free Cash Flow is useful to investors because it assists their ability to meaningfully evaluate (1) our ability to service our outstanding indebtedness, including our credit facilities and capital and financing leases, (2) our ability to pay dividends to stockholders or engage in share repurchases, (3) our ability to make capital expenditures, and (4) the underlying value of our assets, including our interests in real estate.

We believe presentation of our proportionate share of Adjusted Free Cash Flow of unconsolidated ventures is useful to investors since such measure reflects the cash generated by the operating activities of the unconsolidated ventures for the reporting period and, to the extent such cash is not distributed to us, 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 our potential need to make capital contributions to the ventures of our proportionate share of cash needed for such items.

The table below reconciles the Company's Adjusted Free Cash Flow from our net cash provided by (used in) operating activities for the three and six months ended June 30, 2017 and June 30, 2016 (in thousands):

Three Months Ended
June 30,

Six Months Ended
June 30,

2017

2016

2017

2016

Net cash provided by operating activities

$

133,108

$

107,496

$

199,874

$

177,839

Net cash used in investing activities

(60,843)

(82,288)

(261,215)

(156,736)

Net cash used in financing activities

20,026

(57,017)

(3,528)

(70,079)

Net decrease in cash and cash equivalents

$

92,291

$

(31,809)

$

(64,869)

$

(48,976)

Net cash provided by operating activities

$

133,108

$

107,496

$

199,874

$

177,839

Changes in operating assets and liabilities

(40,401)

10,420

8,191

38,560

Proceeds from refundable entrance fees, net of refunds

(652)

(6)

(1,554)

(599)

Lease financing debt amortization

(14,382)

(15,532)

(31,630)

(30,834)

Distributions from unconsolidated ventures from cumulative
share of net earnings

(453)

(892)

Non-development capital expenditures, net

(38,832)

(58,759)

(73,554)

(115,793)

Property insurance proceeds

1,571

1,267

2,969

3,597

Adjusted Free Cash Flow

$

39,959

$

44,886

$

103,404

$

72,770

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 the three and six months ended June 30, 2017 and June 30, 2016 (in thousands).  For purposes of this presentation, amounts for each line item represent the aggregate amounts of such line items for all of our unconsolidated ventures.

Three Months Ended
June 30,

Six Months Ended
June 30,

2017

2016

2017

2016

Net cash provided by operating activities

$

85,867

$

55,842

$

145,791

$

110,435

Net cash used in investing activities

(68,585)

(45,682)

(1,218,665)

(83,606)

Net cash provided by (used in) financing activities

(29,166)

(14,784)

1,115,893

(20,635)

Net increase in cash and cash equivalents

$

(11,884)

$

(4,624)

$

43,019

$

6,194

Net cash provided by operating activities

$

85,867

$

55,842

$

145,791

$

110,435

Changes in operating assets and liabilities

(16,559)

(5,205)

(14,473)

(7,525)

Proceeds from refundable entrance fees, net of refunds

(5,028)

(677)

(9,393)

(2,776)

Non-development capital expenditures, net

(23,739)

(24,507)

(40,766)

(46,312)

Property insurance proceeds

834

$

1,227

$

Adjusted Free Cash Flow of unconsolidated ventures

$

41,375

$

25,453

$

82,386

$

53,822

Brookdale weighted average ownership percentage

19.1

%

38.7

%

20.2

%

34.1

%

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

$

7,920

$

9,860

$

16,670

$

18,365

View original content:http://www.prnewswire.com/news-releases/brookdale-announces-second-quarter-2017-results-300500567.html

SOURCE Brookdale Senior Living Inc.

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