Brookdale Senior Living's total revenue increases $32.9 million in third quarter 2013

Brookdale Senior Living Inc. (NYSE: BKD) (the "Company") today reported financial and operating results for the third quarter of 2013.

• Cash From Facility Operations ("CFFO") was $75.2 million, or $0.61 per share, a 13.8% increase compared to CFFO of $66.1 million, or $0.54 per share, for the third quarter of 2012, excluding $4.7 million and $4.6 million of integration, transaction-related and electronic medical records ("EMR") roll-out costs for the three months ended September 30, 2013 and 2012, respectively. 
• Average occupancy was 89.0%, a 100 basis point increase from 88.0% in the third quarter of 2012 and an increase of 70 basis points from the second quarter of 2013.
• Senior housing average monthly revenue per unit increased 2.8% compared to the third quarter of 2012. 
• Same community Facility Operating Income for the senior housing portfolio grew by 8.1% compared to the prior year quarter, as same community revenue grew by 3.8% and same community expenses grew by 1.7%, with margin improving to 33.9%, a 140 basis point increase.
• Adjusted EBITDA was $118.8 million, up 6.6% as compared to $111.5 million in the third quarter of 2012, excluding integration, transaction-related and EMR roll-out costs in both periods.

Andy Smith, Brookdale's CEO, said, "Brookdale's operating and financial momentum continued for the third quarter, with double digit growth in CFFO driven by higher occupancy, better pricing and cost control.  We produced the best comparable and sequential quarter occupancy increases achieved thus far in 2013 for both our total senior housing portfolio and our same community portfolio.  In addition, pricing remained solid in our senior housing portfolio with a 2.8% increase for the total portfolio and a same community increase of 2.5%, while expenses increased 1.3% and 1.7%, respectively.  Demonstrating the inherent operating leverage in our senior housing business, Facility Operating Income rose 8.5% for the total portfolio and 8.1% on a same-community basis.  With a gradually improving economic environment and increasing traction from our marketing and operational initiatives, we are well positioned to build on the strong performance trends of the first nine months of 2013."

Financial Results

Total revenue for the third quarter was $729.0 million, an increase of $32.9 million, or 4.7%, from the third quarter of 2012.  Third quarter 2013 total revenue is comprised of resident fee revenue of $631.1 million, which increased $25.6 million, or 4.2%, from the third quarter of 2012, management fee revenue of $7.6 million, which increased $0.2 million, or 2.9%, from the third quarter of 2012, and managed community reimbursed costs of $90.2 million, which increased $7.0 million, or 8.4%.

Resident fee revenue increased primarily as a result of an increase in the average monthly revenue per unit compared to the prior year period and an increase in occupancy.  Average monthly revenue per unit for the senior housing portfolio was $4,397 in the third quarter, an increase of $118, or 2.8%, over the third quarter of 2012.  Average occupancy for all consolidated communities for the third quarter of 2013 was 89.0%, compared to 88.0% for the third quarter of 2012 and 88.3% for the second quarter of 2013.  For the managed community portfolio, which includes a number of pre-stabilized communities in the initial fill-up phase, average occupancy for the third quarter was 85.7%, a 140 basis point increase from 84.3% in the third quarter of 2012 and an 80 basis point increase from the second quarter of 2013.  

Facility operating expenses for the third quarter were $420.6 million, an increase of $9.1 million, or 2.2%, from the third quarter of 2012.  Costs incurred on behalf of managed communities increased $7.0 million, or 8.4%.

General and administrative expenses for the third quarter were $45.8 million.  Excluding integration, transaction-related and EMR roll-out costs of $4.7 million and $4.6 million in the third quarters of 2013 and 2012, respectively, and non-cash stock-based compensation expense from both periods, general and administrative expenses were $34.3 million in the third quarter of 2013 versus $32.5 million for the prior year same period.  Demonstrating the Company's efficient platform, general and administrative expenses were, excluding these items, 4.3% of resident fee revenue (including resident fee revenues under management) in the third quarter of 2013, consistent with the prior year period.

Non-GAAP Financial Measures

Brookdale's management utilizes Adjusted EBITDA and CFFO to evaluate the Company's performance and liquidity because these metrics exclude non-cash items such as depreciation and amortization, asset impairment charges, non-cash stock-based compensation expense, gain on facility lease termination and straight-line lease expense, net of deferred gain amortization. Adjusted EBITDA and CFFO include integration, transaction-related and EMR roll-out costs of $4.7 million and $4.6 million for the three months ended September 30, 2013 and 2012, respectively, and $10.4 million and $16.2 million for the nine months ended September 30, 2013 and 2012, respectively. Brookdale also uses Facility Operating Income to assess the performance of its communities.

For the quarter ended September 30, 2013, Facility Operating Income was $203.6 million, an increase of $15.9 million, or 8.5%, over the third quarter of 2012, and Adjusted EBITDA, excluding integration, transaction-related and EMR roll-out costs in 2013 and 2012, was $118.8 million, an increase of $7.3 million, or 6.6%, over the third quarter of 2012. For the nine months ended September 30, 2013, Facility Operating Income was $605.7 million, an increase of $34.1 million, or 6.0%, over the first nine months of 2012, and Adjusted EBITDA, excluding integration, transaction-related and EMR roll-out costs in 2013 and 2012, was $348.6 million, an increase of $24.5 million, or 7.5%, over the same period in 2012.  

Cash From Facility Operations was $70.6 million for the third quarter of 2013, or $0.57 per share.  CFFO, excluding integration, transaction-related and EMR roll-out costs for both periods, was $75.2 million for the third quarter of 2013, or $0.61 per share, an increase of $9.1 million, or 13.8%, over CFFO of $66.1 million, or $0.54 per share, for the third quarter of 2012. CFFO, excluding integration, transaction-related and EMR roll-out costs for both periods, was $219.9 million for the nine months ended September 30, 2013, or $1.79 per share, an increase of $26.2 million, or 13.5%, over CFFO of $193.8 million, or $1.59 per share, for the same period in 2012. 

Net Loss

Net loss for the third quarter of 2013 was $(1.0) million, or $(0.01) per diluted common share. The net loss for the quarter includes non-cash items for depreciation and amortization, asset impairment, non-cash stock-based compensation expense, straight-line lease expense, net of deferred gain amortization and change in fair value of derivatives.

Operating Activities

The Company reports information on six segments.  Four segments (Retirement Centers, Assisted Living, CCRCs – Rental and CCRCs – Entry Fee) constitute the Company's consolidated senior housing portfolio.  The fifth segment, Innovative Senior Care, includes the Company's outpatient therapy, home health and hospice services.  The sixth segment, Management Services, includes the services provided to unconsolidated communities that are operated under management agreements.

Senior Housing

Revenue for the consolidated senior housing portfolio was $570.0 million for the third quarter of 2013, an increase of 3.9% from the third quarter of 2012.  Revenue was positively impacted by a 100 basis point increase in occupancy and a 2.8% increase in rate over the third quarter of 2012.  Facility operating expenses increased by $4.7 million, or 1.3%.  Operating income for the senior housing portfolio for the third quarter of 2013 increased by $16.7 million, or 9.1%, from the third quarter of 2012 and operating margin increased to 34.9% in the third quarter of 2013 from 33.2% in the third quarter of 2012.

Same community results for the consolidated senior housing portfolio for the three months ended September 30, 2013 showed revenues grew 3.8% over the corresponding period in 2012 as revenue per unit increased by 2.5% and occupancy grew by 100 basis points.  Same community expenses grew by 1.7% over the third quarter of 2012.  Same community Facility Operating Income for the senior housing portfolio increased by 8.1% over the third quarter of 2012.  

Innovative Senior Care

Revenue for the Company's ISC segment increased $4.3 million, or 7.6%, to $61.2 million, for the third quarter of 2013, primarily due to the roll-out of the Company's ancillary services programs to additional units. In comparison to the third quarter of 2012, a volume increase in home health was partially offset by a reduction in volume for outpatient therapy.  ISC operating expenses increased $4.5 million, or 9.9%, primarily due to an increase in expenses incurred in connection with the continued expansion of the Company's ancillary services programs.  As a result, ISC operating income was $11.8 million, a decrease of $0.2 million, or 1.3%, versus the third quarter of 2012.

By the end of the third quarter, the Company's ancillary services programs provided outpatient therapy services to approximately 38,250 units and the Company's home health agencies were serving approximately 33,900 units across the consolidated Brookdale portfolio. Including non-consolidated communities, the Company's outpatient therapy and home health operations serve approximately 53,000 and 47,500 units, respectively.  The Company had ten markets where hospice services were provided during the third quarter.

Liquidity

Brookdale had $42.7 million of unrestricted cash and cash equivalents and $103.4 million of restricted cash on its balance sheet at the end of the third quarter. As of September 30, 2013, the Company had an available secured line of credit with a $250.0 million commitment and $238.6 million of availability (of which $45.0 million had been drawn as of that date).  The Company also had secured and unsecured letter of credit facilities of up to $92.5 million in the aggregate as of September 30, 2013, with issued letters of credit totaling $71.8 million.

Transactions

Subsequent to the end of the quarter, the Company announced that it had completed its previously announced acquisition of seven senior living communities with a total of 613 units from Chartwell Retirement Residences for an aggregate purchase price of $80.9 million, plus customary transaction expenses. The Company had been managing six of the communities since the acquisition of Horizon Bay in September 2011. The acquisition was effective October 1, 2013. During the quarter, the Company also purchased one home health agency and one hospice agency for an aggregate purchase price of approximately $1.2 million.

During the quarter, the Company obtained $172.1 million in loans secured by first mortgages on four communities. Proceeds of the loans were used to refinance or repay a total of $142.0 million of debt which was scheduled to mature on August 1, 2013.

2013 Outlook

Based on results through the third quarter of 2013 and expected trends for the balance of the year, the Company raised the lower end of its guidance range for full year Cash From Facility Operations to a new range between $2.40 and $2.45 per share, excluding integration, transaction-related and EMR roll-out costs. These estimates include expected accretion from the Chartwell portfolio acquisition, but do not include the impact on operating results from other possible future acquisitions or dispositions.