FOR IMMEDIATE RELEASE
Contact:
Brookdale Senior Living Inc.
Ross Roadman 615-564-8104
Brookdale Announces Second Quarter 2010 Results and Record CFFO of $57.0 Million
Highlights
| | · | Cash From Facility Operations (“CFFO”) was $57.0 million, or $0.48 per share, in the second quarter, versus $52.5 million, or $0.50 per share, for the second quarter of 2009. |
| | · | Average unit occupancy was 86.8%, a 20 basis point increase from 86.6% in the first quarter of 2010 and 60 basis points higher than the second quarter of 2009. All of the Company’s business segments experienced a sequential quarter occupancy increase. |
| | · | Revenue increased over the second quarter of 2009 by $48.2 million, or 9.6%, to $549.0 million. |
| | · | Adjusted EBITDA improved over the second quarter of 2009 by $8.2 million, or 8.9%, to $100.3 million. |
| | · | Three home health agencies were acquired during the quarter and four formerly leased communities were purchased. |
| | · | A $117.0 million, 10-year fixed rate mortgage debt refinancing transaction was completed and $119.0 million of 2011 debt maturities were eliminated. |
Nashville, TN. August 2, 2010 – Brookdale Senior Living Inc. (NYSE: BKD) (the “Company”) today reported financial and operating results for the second quarter of 2010.
Bill Sheriff, Brookdale’s CEO, said, “We had solid results in the second quarter, particularly given the increased challenges of the macro-economic environment. We built occupancy every month and ended with all segments increasing for the quarter. We continue to have positive, but modest, senior housing revenue per unit increases, and ancillary service revenue continues to experience strong growth. During the second quarter, we made three home health agency acquisitions and have an active pipeline of pending agency acquisitions and start-up agencies which we expect to operate before the end of the year. We have had a good start to the third quarter with an increase in occupancy in July, the completion of two additional home health agency acquisitions and an improvement in our entr y fee sales activity.”
Mark Ohlendorf, Co-President and CFO of Brookdale, commented, “We continue to make progress on strengthening our balance sheet. During the quarter, we began to address the 2011 maturities by completing a $117.0 million refinancing that replaced $119.0 million of mortgage loans that were scheduled to mature in 2011. We expect to complete two additional refinancing transactions soon for over $200 million that will virtually eliminate the remaining 2011 maturities and begin to address the 2012 maturities. Additionally, with our cash and secured line, we had $171.3 million of liquidity at the end of the second quarter.”
Financial Results
Total revenue for the second quarter was $549.0 million, an increase of $48.2 million, or 9.6%, from the second quarter of 2009. Excluding the revenue from the communities acquired in the fourth quarter of 2009, revenue increased by 5.5%. The increase in revenue was primarily driven by an increase in average monthly revenue per unit, including growing revenues from ancillary services, an increase in capacity through expansions and acquisitions, and an increase in occupancy.
Average monthly revenue per unit was $4,415 in the second quarter, an increase of $157, or 3.7%, over the second quarter of 2009. Average occupancy for all consolidated communities for the second quarter of 2010 was 86.8%, 60 basis points higher than the second quarter of 2009 and 20 basis points higher than the first quarter of 2010.
Facility operating expenses for the second quarter were $353.1 million, an increase of $36.5 million, or 11.5%, from the second quarter of 2009. The increase over the prior year’s quarter was primarily driven by the growth of ancillary services, salaries and wages and expenses associated with expansions and acquisitions. Operating contribution margin for the Company during the second quarter of 2010 was 35.5%.
General and administrative expenses for the second quarter were $31.8 million, nearly level with the $31.7 million of general and administrative expenses in the second quarter of 2009. Excluding non-cash compensation expense from both periods, general and administrative expenses were $26.7 million in the second quarter of 2010 versus $24.9 million for the prior year same period. The increase was driven by growth in ancillary services and units, though as a percent of revenue, general and administrative expenses were 4.6% of revenue (including revenues under management and excluding non-cash compensation expense) in both the second quarter of 2010 and 2009.
Brookdale’s management utilizes Adjusted EBITDA and Cash From Facility Operations to evaluate the Company’s performance and liquidity because these metrics exclude non-cash expenses such as depreciation and amortization, non-cash stock-based compensation expense and straight-line lease expense, net of deferred gain amortization. Brookdale also uses Facility Operating Income to assess the performance of its communities.
For the quarter ended June 30, 2010, Facility Operating Income was $187.7 million, an increase of $10.1 million, or 5.7%, from the second quarter of 2009, and Adjusted EBITDA was $100.3 million, an increase of $8.2 million, or 8.9%, over the second quarter of 2009. For the six months ended June 30, 2010, Facility Operating Income was $369.6 million, an increase of $19.0 million from the first half of 2009, and Adjusted EBITDA was $196.6 million, an increase of $18.6 million, or 10.4%, over the first half of 2009.
Cash From Facility Operations was $57.0 million for the second quarter of 2010, or $0.48 per share, an increase of $4.5 million, or 8.6%, from CFFO of $52.5 million, or $0.50 per share, for the second quarter of 2009. Cash From Facility Operations was $111.4 million for the six months ended June 30, 2010, an increase of $8.7 million, or 8.5%, from CFFO of $102.7 million for the first half of 2009.
Net loss for the second quarter of 2010 was $(9.6) million, or $(0.08) per diluted common share. The loss for the quarter includes non-cash items for depreciation and amortization, non-cash stock-based compensation expense and straight-line lease expense, net of deferred gain amortization.
Operating Activities
For the quarter ended June 30, 2010, same community revenues grew 2.9% over the same period in 2009 as revenue per unit increased by 2.2% and occupancy increased by 60 basis points. Same community Facility Operating Income for the quarter increased by 0.6% when compared to the second quarter of 2009 as expenses grew by 4.2%.
For the twelve months ended June 30, 2010, same community revenues grew 3.3% over the corresponding period ending in 2009 as revenue per unit increased by 3.5% and occupancy fell by 0.2%. Same community Facility Operating Income increased by 4.6% over the corresponding period ending in 2009.
During the second quarter, the Company acquired three home health agencies for an aggregate purchase price of approximately $2.0 million. A fourth agency was acquired on the first day of the third quarter. The four newly acquired agencies have the potential to serve in aggregate over 2,200 units. An additional home health agency was acquired on August 2. At the end of the quarter, the Company’s home health agencies were serving over 24,000 units across the total consolidated Brookdale portfolio, up from approximately 17,000 units served a year ago. By the end of the second quarter, the Company’s ancillary services programs provided therapy services to almost 38,000 Brookdale units. Therapy and home health services produced $268 of monthly Facility Operating I ncome per occupied unit in the second quarter across all units served, up from $200 per month a year ago, driven primarily by maturation of existing clinics and the acquisition of home health agencies.
During the quarter, the Company acquired four independent living communities that the Company previously leased for an aggregate purchase price of $22.5 million. Transaction expenses of approximately $0.3 million were incurred and were recorded as general and administrative expense in the current quarter. The results of operations of the acquired communities, both prior and subsequent to the acquisition, are reported in the Retirement Centers segment.
Balance Sheet
Brookdale had $51.3 million of unrestricted cash and cash equivalents and $219.9 million of restricted cash on its balance sheet at the end of the second quarter.
In June, the Company obtained a $117.0 million first mortgage loan, secured by 21 communities. The loan bears interest at a fixed rate of 5.98% and matures in July 2020. In connection with the transaction, the Company repaid $119.0 million of existing variable rate debt that was scheduled to mature in 2011. During the quarter, the Company also exercised its option to extend the maturity date of $121.0 million of mortgage debt from May 2010 to May 2011. The Company currently has no mortgage debt maturities before 2011 other than periodic, scheduled principal payments.
Supplemental Information
The Company will shortly post on the Investor Relations section of the Company’s website at www.brookdaleliving.com supplemental information relating to the Company’s second quarter results. This information 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 on Tuesday, August 3, 2010 to review the financial results of its second quarter ended June 30, 2010. The conference call is scheduled for 9:00 AM ET. All interested parties are welcome to participate in the live conference call. 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.brookdaleliving.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 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 10, 2010 by dialing (800) 642-1687 (from within the U.S.) or (706) 645-9291 (from outside of the U.S.) and referencing access code “89497645.” A copy of this earnings release is posted on the Investor Relations page of the Brookdale website (www.brookdaleliving.com).
About Brookdale Senior Living
Brookdale Senior Living Inc. is a leading owner and operator of senior living communities throughout the United States. The Company is committed to providing an exceptional living experience through properties that are designed, purpose-built and operated to provide the highest-quality service, care and living accommodations for residents. Currently the Company owns and operates independent living, assisted living, and dementia-care communities and continuing care retirement centers, with 564 communities in 35 states and the ability to serve approximately 52,000 residents.
Safe Harbor
Certain items 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. Those 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 our operational
initiatives and our expectations regarding their effect on our results; our expectations regarding occupancy, revenue, cash flow, expense levels, the demand for senior housing, expansion activity, acquisition opportunities and asset dispositions; our belief regarding our growth prospects; 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 liquidity; our plans to deleverage; our expectations regarding financings and refinancings of assets (including the timing thereof); our expectations regarding the effect of pending or proposed changes in government reimbursement programs on our results; our plans to generate growth organically th rough occupancy improvements, increases in annual rental rates and the achievement of operating efficiencies and cost savings; our plans to expand our offering of ancillary services (therapy and home health); our plans to expand existing communities; our plans to acquire additional communities, asset portfolios, operating companies and home health agencies; the expected project costs for our expansion program; our expected levels of expenditures and reimbursements (and the timing thereof); our expectations for the performance of our entrance fee communities; our ability to anticipate, manage and address industry trends and their effect on our business; and our ability to increase revenues, earnings, Adjusted EBITDA, Cash From Facility Operations, and/or Facility Operating Income. Forward-looking statements are generally identifiable by use of forward-looking terminology such as “may,” “will,” “should,” “potential,” “intend,” “expect ,” “endeavor,” “seek,” “anticipate,” “estimate,” “overestimate,” “underestimate,” “believe,” “could,” “would,” “project,” “predict,” “continue,” “plan” or other similar words or expressions. Forward-looking statements are based on certain assumptions or estimates, discuss future expectations, describe future plans and strategies, contain projections of results of operations or of financial condition, or state other forward-looking information. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Although we believe that the expectations reflected in such forward-looking statements are based on reasonable assumptions, actual results and performance could differ materially from those set forth in the forward-looking statements. Factors which could have a material ad verse effect on our operations and future prospects or which could cause events or circumstances to differ from these forward-looking statements include, but are not limited to, the risk associated with the current global economic crisis and its impact upon capital markets and liquidity; our inability to extend (or refinance) debt (including our credit and letter of credit facilities) 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 operating lease payments; the effect of our indebtedness and long-term operating leases on our liquidity; the risk of loss of property pursuant to our mortgage debt and long-term lease obligations; the possibili ties 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; the risk that we may be required to post additional cash collateral in connection with our interest rate swaps; the risk that continued market deterioration could jeopardize the performance of certain of our counterparties’ obligations; changes in governmental reimbursement programs; our limited operating history on a combined basis; our ability to effectively manage our growth; our ability to maintain consistent quality control; delays in obtaining regulatory approvals; our ability to complete acquisitions and integrate them into our operations; 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; increased competition for skilled personnel; increased union activity; departure of our key officers; increases in market interest rates; environmental contamination at any of our facilities; 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; and 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 c autionary 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 the associated earnings conference call. The factors discussed above and the other factors noted in our SEC filings from time to time could cause our actual results to differ significantly from those contained in any forward-looking statement. 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 forward-looking statements contained herein 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
(Unaudited, in thousands, except for per share data)
| | | Three Months Ended | | | Six Months Ended | |
| | | June 30, | | | June 30, | |
| | | 2010 | | | 2009 | | | 2010 | | | 2009 | |
| Revenue | | | | | | | | | | | | |
| Resident fees | | $ | 547,560 | | | $ | 499,459 | | | $ | 1,090,589 | | | $ | 995,688 | |
| Management fees | | | 1,412 | | | | 1,298 | | | | 2,807 | | | | 3,015 | |
| Total revenue | | | 548,972 | | | | 500,757 | | | | 1,093,396 | | | | 998,703 | |
| | | | | | | | | | | | | | | | | |
| Expense | | | | | | | | | | | | | | | | |
| Facility operating expense (excluding depreciation and amortization of $52,174, $45,558, $104,207 and $91,251, respectively) | | | 353,051 | | | | 316,586 | | | | 708,375 | | | | 634,698 | |
| General and administrative expense (including non-cash stock-based compensation expense of $5,105, $6,871, $9,976 and $13,680, respectively) | | | 31,834 | | | | 31,721 | | | | 63,786 | | | | 65,428 | |
| Facility lease expense | | | 67,175 | | | | 68,434 | | | | 135,424 | | | | 136,175 | |
| Depreciation and amortization | | | 73,168 | | | | 67,262 | | | | 146,229 | | | | 135,395 | |
| Total operating expense | | | 525,228 | | | | 484,003 | | | | 1,053,814 | | | | 971,696 | |
| Income from operations | | | 23,744 | | | | 16,754 | | | | 39,582 | | | | 27,007 | |
| | | | | | | | | | | | | | | | | |
| Interest income | | | 453 | | | | 328 | | | | 1,080 | | | | 1,148 | |
| Interest expense: | | | | | | | | | | | | | | | | |
| Debt | | | (33,903 | ) | | | (33,450 | ) | | | (67,183 | ) | | | (66,271 | ) |
| Amortization of deferred financing costs and debt discount | | | (2,410 | ) | | | (3,390 | ) | | | (5,006 | ) | | | (4,932 | ) |
| Change in fair value of derivatives and amortization | | | (2,207 | ) | | | 7,900 | | | | (4,847 | ) | | | 3,615 | |
| Loss on extinguishment of debt, net | | | (682 | ) | | | (1,740 | ) | | | (701 | ) | | | (1,740 | ) |
| Equity in earnings of unconsolidated ventures | | | 119 | | | | 581 | | | | 516 | | | | 1,176 | |
| Other non-operating (expense) income | | | - | | | | (8 | ) | | | - | | | | 4,224 | |
| Loss before income taxes | | | (14,886 | ) | | | (13,025 | ) | | | (36,559 | ) | | | (35,773 | ) |
| Benefit for income taxes | | | 5,329 | | | | 2,495 | | | | 12,707 | | | | 11,607 | |
| Net loss | | $ | (9,557 | ) | | $ | (10,530 | ) | | $ | (23,852 | ) | | $ | (24,166 | ) |
| | | | | | | | | | | | | | | | | |
| Basic and diluted loss per share | | $ | (0.08 | ) | | $ | (0.10 | ) | | $ | (0.20 | ) | | $ | (0.23 | ) |
| | | | | | | | | | | | | | | | | |
| Weighted average shares used in | | | | | | | | | | | | | | | | |
| computing basic and diluted net loss per share | | | 119,721 | | | | 106,042 | | | | 119,519 | | | | 103,902 | |
Condensed Consolidated Balance Sheets
(in thousands)
| | | June 30, 2010 | | | December 31, 2009 | |
| | | (unaudited) | | | | |
| | | | | | | |
| Cash and cash equivalents | | $ | 51,345 | | | $ | 66,370 | |
| Cash and escrow deposits - restricted | | | 129,827 | | | | 109,977 | |
| Accounts receivable, net | | | 79,824 | | | | 75,816 | |
| Other current assets | | | 60,861 | | | | 58,038 | |
| Total current assets | | | 321,857 | | | | 310,201 | |
| Property, plant, and equipment and | | | | | | | | |
| leasehold intangibles, net | | | 3,794,212 | | | | 3,857,774 | |
| Other assets, net | | | 481,975 | | | | 477,536 | |
| Total assets | | $ | 4,598,044 | | | $ | 4,645,511 | |
| | | | | | | | | |
| Current liabilities | | $ | 800,117 | | | $ | 691,597 | |
| Long-term debt, less current portion | | | 2,323,064 | | | | 2,459,341 | |
| Other liabilities | | | 401,386 | | | | 407,991 | |
| Total liabilities | | | 3,524,567 | | | | 3,558,929 | |
| Stockholders’ equity | | | 1,073,477 | | | | 1,086,582 | |
| Total liabilities and stockholders’ equity | | $ | 4,598,044 | | | $ | 4,645,511 | |
Condensed Consolidated Statements of Cash Flows
(Unaudited, in thousands)
| | | Six Months Ended June 30, | |
| | | 2010 | | | 2009 | |
| Cash Flows from Operating Activities | | | | | | |
| Net loss | | $ | (23,852 | ) | | $ | (24,166 | ) |
| Adjustments to reconcile net loss to net cash provided by operating activities: | | | | | |
| Loss on extinguishment of debt, net | | | 701 | | | | 1,740 | |
| Depreciation and amortization | | | 151,235 | | | | 140,327 | |
| Equity in earnings of unconsolidated ventures | | | (516 | ) | | | (1,176 | ) |
| Distributions from unconsolidated ventures from cumulative share of net earnings | | | 375 | | | | 11 | |
| Amortization of deferred gain | | | (2,172 | ) | | | (2,171 | ) |
| Amortization of entrance fees | | | (11,526 | ) | | | (10,342 | ) |
| Proceeds from deferred entrance fee revenue | | | 17,904 | | | | 10,590 | |
| Deferred income tax benefit | | | (13,943 | ) | | | (11,517 | ) |
| Change in deferred lease liability | | | 5,297 | | | | 8,280 | |
| Change in fair value of derivatives and amortization | | | 4,847 | | | | (3,615 | ) |
| Loss (gain) on sale of assets | | | 144 | | | | (4,352 | ) |
| Change in future service obligation | | | (1,064 | ) | | | - | |
| Non-cash stock-based compensation | | | 9,976 | | | | 13,680 | |
| Changes in operating assets and liabilities: | | | | | | | | |
| Accounts receivable, net | | | (2,706 | ) | | | (1,613 | ) |
| Prepaid expenses and other assets, net | | | (1,870 | ) | | | (4,484 | ) |
| Accounts payable and accrued expenses | | | (9,790 | ) | | | 11,813 | |
| Tenant refundable fees and security deposits | | | (2,269 | ) | | | (12,076 | ) |
| Deferred revenue | | | 4,630 | | | | 8,310 | |
| Other | | | (10,630 | ) | | | (6,167 | ) |
| Net cash provided by operating activities | | | 114,771 | | | | 113,072 | |
| Cash Flows from Investing Activities | | | | | | | | |
| Decrease in lease security deposits and lease acquisition deposits, net | | | 801 | | | | 1,480 | |
| Increase in cash and escrow deposits — restricted | | | (36,360 | ) | | | (53,867 | ) |
| Net proceeds from sale of property, pland and equipment | | | - | | | | 210 | |
| Additions to property, plant, and equipment and leasehold intangibles, | | | | | | | | |
| net of related payables | | | (45,510 | ) | | | (62,934 | ) |
| Acquisition of assets, net of related payables and cash received | | | (21,809 | ) | | | (190 | ) |
| Payment on (issuance of) notes receivable, net | | | 169 | | | | (795 | ) |
| Investment in unconsolidated ventures | | | (1,053 | ) | | | (1,106 | ) |
| Distributions received from unconsolidated ventures | | | 47 | | | | 790 | |
| Proceeds from sale of assets | | | 1,487 | | | | - | |
| Proceeds from sale leaseback transaction | | | - | | | | 9,166 | |
| Proceeds from sale of unconsolidated venture | | | - | | | | 8,831 | |
| Other | | | (316 | ) | | | - | |
| Net cash used in investing activities | | | (102,544 | ) | | | (98,415 | ) |
| Cash Flows from Financing Activities | | | | | | | | |
| Proceeds from debt | | | 168,684 | | | | 50,519 | |
| Repayment of debt and capital lease obligations | | | (192,954 | ) | | | (15,733 | ) |
| Proceeds from line of credit | | | 60,000 | | | | 60,446 | |
| Repayment of line of credit | | | (60,000 | ) | | | (219,899 | ) |
| Payment of financing costs, net of related payables | | | (6,044 | ) | | | (7,327 | ) |
| Proceeds from equity offering, net | | | - | | | | 163,908 | |
| Other | | | (44 | ) | | | (476 | ) |
| Refundable entrance fees: | | | | | | | | |
| Proceeds from refundable entrance fees | | | 15,061 | | | | 7,736 | |
| Refunds of entrance fees | | | (11,122 | ) | | | (12,193 | ) |
| Cash portion of loss on extinguishment of debt | | | (179 | ) | | | - | |
| Recouponing and payment of swap termination | | | (654 | ) | | | - | |
| Net cash (used in) provided by financing activities | | | (27,252 | ) | | | 26,981 | |
| Net (decrease) increase in cash and cash equivalents | | | (15,025 | ) | | | 41,638 | |
| Cash and cash equivalents at beginning of period | | | 66,370 | | | | 53,973 | |
| Cash and cash equivalents at end of period | | $ | 51,345 | | | $ | 95,611 | |
Non-GAAP Financial Measures
Adjusted EBITDA
Adjusted EBITDA is a measure of operating performance that is not calculated in accordance with U.S. generally accepted accounting principles (“GAAP”). Adjusted EBITDA should not be considered in isolation or as a substitute for net income, income from operations or cash flows provided by or used in operations, as determined in accordance with GAAP. Adjusted EBITDA is a key measure of the Company's operating performance used by management to focus on operating performance and management without mixing in items of income and expense that relate to long-term contracts and the financing and capitalization of the business. We define Adjusted EBITDA as net income (loss) before provision (benefit) for income taxes, non-operating (income) expense items, loss on sale of communities, depreciation and amortization (including non-cash impairment charges), straight-line lease expense (income), amortization of deferred gain, amortization of deferred entrance fees, non-cash compensation expense, and change in future service obligation and including entrance fee receipts and refunds (excluding first generation entrance fee receipts on a newly opened entrance fee CCRC).
We believe Adjusted EBITDA is useful to investors in evaluating our performance, results of operations and financial position for the following reasons:
| | · | It is helpful in identifying trends in our day-to-day performance because the items excluded have little or no significance to our day-to-day operations; |
| | · | It provides an assessment of controllable expenses and affords management the ability to make decisions which are expected to facilitate meeting current financial goals as well as achieve optimal financial performance; and |
| | · | It is an indication to determine if adjustments to current spending decisions are needed. |
The table below reconciles Adjusted EBITDA from net loss for the three and six months ended June 30, 2010 and 2009 (in thousands):
| | | Three Months Ended June 30, | | | Six Months Ended June 30, | |
| | | 2010 | | | 2009 | | | 2010 | | | 2009 | |
| Net loss | | $ | (9,557 | ) | | $ | (10,530 | ) | | $ | (23,852 | ) | | $ | (24,166 | ) |
| Benefit for income taxes | | | (5,329 | ) | | | (2,495 | ) | | | (12,707 | ) | | | (11,607 | ) |
| Equity in earnings of unconsolidated ventures | | | (119 | ) | | | (581 | ) | | | (516 | ) | | | (1,176 | ) |
| Loss on extinguishment of debt | | | 682 | | | | 1,740 | | | | 701 | | | | 1,740 | |
| Other non-operating loss (income) | | | - | | | | 8 | | | | - | | | | (4,224 | ) |
| Interest expense: | | | | | | | | | | | | | | | | |
| Debt | | | 26,335 | | | | 26,068 | | | | 51,969 | | | | 51,795 | |
| Capitalized lease obligation | | | 7,568 | | | | 7,382 | | | | 15,214 | | | | 14,476 | |
| Amortization of deferred financing costs | | | 2,410 | | | | 3,390 | | | | 5,006 | | | | 4,932 | |
| Change in fair value of derivatives and amortization | | | 2,207 | | | | (7,900 | ) | | | 4,847 | | | | (3,615 | ) |
| Interest income | | | (453 | ) | | | (328 | ) | | | (1,080 | ) | | | (1,148 | ) |
| Income from operations | | | 23,744 | | | | 16,754 | | | | 39,582 | | | | 27,007 | |
| Depreciation and amortization | | | 73,168 | | | | 67,262 | | | | 146,229 | | | | 135,395 | |
| Straight-line lease expense | | | 2,161 | | | | 4,032 | | | | 5,297 | | | | 8,280 | |
| Amortization of deferred gain | | | (1,086 | ) | | | (1,085 | ) | | | (2,172 | ) | | | (2,171 | ) |
| Amortization of entrance fees | | | (5,787 | ) | | | (5,232 | ) | | | (11,526 | ) | | | (10,342 | ) |
| Non-cash compensation expense | | | 5,105 | | | | 6,871 | | | | 9,976 | | | | 13,680 | |
| Change in future service obligation | | | (1,064 | ) | | | - | | | | (1,064 | ) | | | - | |
Entrance fee receipts(1) | | | 14,973 | | | | 9,816 | | | | 32,965 | | | | 18,326 | |
First generation entrance fees received (2) | | | (5,596 | ) | | | - | | | | (11,567 | ) | | | - | |
| Entrance fee disbursements | | | (5,360 | ) | | | (6,357 | ) | | | (11,122 | ) | | | (12,193 | ) |
| Adjusted EBITDA | | $ | 100,258 | | | $ | 92,061 | | | $ | 196,598 | | | $ | 177,982 | |
| | (1) | Includes the receipt of refundable and nonrefundable entrance fees. |
| | (2) | First generation entrance fees received represents initial entrance fees received from the sale of units at a newly opened entrance fee CCRC where the Company is required to apply such entrance fee proceeds to satisfy debt. |
Cash From Facility Operations
Cash From Facility Operations (CFFO) is a measurement of liquidity that is not calculated in accordance with GAAP and should not be considered in isolation as a substitute for cash flows provided by or used in operations, as determined in accordance with GAAP. We define CFFO as net cash provided by (used in) operating activities adjusted for changes in operating assets and liabilities, deferred interest and fees added to principal, refundable entrance fees received, first generation entrance fee receipts on a newly opened entrance fee CCRC, entrance fee refunds disbursed, lease financing debt amortization with fair market value or no purchase options, other, and recurring capital expenditures. Recurring capital expenditures include expenditures capitalized in accordance with GAAP that are funded from CFFO. Amounts excluded from recurring capital expenditures consist primarily of unusual or non-recurring capital items (including integration capital expenditures), community purchases and/or major projects or renovations that are funded using financing proceeds and/or proceeds from the sale of communities that are held for sale.
We believe CFFO is useful to investors in evaluating our liquidity for the following reasons:
| | · | It provides an assessment of our ability to facilitate meeting current financial and liquidity goals. |
| | · | To assess our ability to: |
| | (i) | service our outstanding indebtedness; |
| | (iii) | make regular recurring capital expenditures to maintain and improve our facilities. |
The table below reconciles CFFO from net cash provided by operating activities for the three and six months ended June 30, 2010 and 2009 (in thousands):
| | | Three Months Ended June 30, | | | Six Months Ended June 30, | |
| | | 2010 | | | 2009 | | | 2010 | | | 2009 | |
| | | | | | | | | | | | | |
| Net cash provided by operating activities | | $ | 67,642 | | | $ | 44,315 | | | $ | 114,771 | | | $ | 113,072 | |
| Changes in operating assets and liabilities | | | 3,464 | | | | 16,150 | | | | 22,635 | | | | 4,217 | |
Refundable entrance fees received(1) | | | 6,619 | | | | 4,098 | | | | 15,061 | | | | 7,736 | |
First generation entrance fees received (2) | | | (5,596 | ) | | | - | | | | (11,567 | ) | | | - | |
| Entrance fee refunds disbursed | | | (5,360 | ) | | | (6,357 | ) | | | (11,122 | ) | | | (12,193 | ) |
| Recurring capital expenditures, net | | | (7,570 | ) | | | (3,888 | ) | | | (14,011 | ) | | | (6,543 | ) |
| Lease financing debt amortization with fair market value or no purchase options | | | (2,221 | ) | | | (1,798 | ) | | | (4,392 | ) | | | (3,578 | ) |
| Cash From Facility Operations | | $ | 56,978 | | | $ | 52,520 | | | $ | 111,375 | | | $ | 102,711 | |
| | (1) | Total entrance fee receipts for the three months ended June 30, 2010 and 2009 were $15.0 million and $9.8 million, respectively, including $8.4 million and $5.7 million, respectively, of nonrefundable entrance fee receipts included in net cash provided by operating activities. Total entrance fee receipts for the six months ended June 30, 2010 and 2009 were $33.0 million and $18.3 million, respectively, including $17.9 million and $10.6 million, respectively, of nonrefundable entrance fee receipts included in net cash provided by operating activities. |
| | (2) | First generation entrance fees received represents initial entrance fees received from the sale of units at a newly opened entrance fee CCRC where the Company is required to apply such entrance fee proceeds to satisfy debt. |
The calculation of CFFO per share is based on weighted average outstanding common shares for the period, excluding any unvested restricted shares. Annual CFFO per share for all periods is calculated as the sum of the quarterly amounts for the year.
Facility Operating Income
Facility Operating Income is not a measurement of operating performance calculated in accordance with GAAP and should not be considered in isolation as a substitute for net income, income from operations, or cash flows provided by or used in operations, as determined in accordance with GAAP. We define Facility Operating Income as net income (loss) before provision (benefit) for income taxes, non-operating (income) expense items, loss on sale of communities, depreciation and amortization (including non-cash impairment charges), facility lease expense, general and administrative expense, including non-cash stock compensation expense, change in future service obligation, amortization of deferred entrance fee revenue and management fees.
We believe Facility Operating Income is useful to investors in evaluating our facility operating performance for the following reasons:
| | · | It is helpful in identifying trends in our day-to-day facility performance; |
| | · | It provides an assessment of our revenue generation and expense management; and |
| | · | It provides an indicator to determine if adjustments to current spending decisions are needed. |
The table below reconciles Facility Operating Income from net loss for the three and six months ended June 30, 2010 and 2009 (in thousands):
| | | Three Months Ended June 30, | | | Six Months Ended June 30, | |
| | | 2010 | | | 2009 | | | 2010 | | | 2009 | |
| | | | | | | | | | | | | |
| Net loss | | $ | (9,557 | ) | | $ | (10,530 | ) | | $ | (23,852 | ) | | $ | (24,166 | ) |
| Benefit for income taxes | | | (5,329 | ) | | | (2,495 | ) | | | (12,707 | ) | | | (11,607 | ) |
| Equity in earnings of unconsolidated ventures | | | (119 | ) | | | (581 | ) | | | (516 | ) | | | (1,176 | ) |
| Loss on extinguishment of debt | | | 682 | | | | 1,740 | | | | 701 | | | | 1,740 | |
| Other non-operating loss (income ) | | | - | | | | 8 | | | | - | | | | (4,224 | ) |
| Interest expense: | | | - | | | | - | | | | - | | | | - | |
| Debt | | | 26,335 | | | | 26,068 | | | | 51,969 | | | | 51,795 | |
| Capitalized lease obligation | | | 7,568 | | | | 7,382 | | | | 15,214 | | | | 14,476 | |
| Amortization of deferred financing costs | | | 2,410 | | | | 3,390 | | | | 5,006 | | | | 4,932 | |
| Change in fair value of derivatives and amortization | | | 2,207 | | | | (7,900 | ) | | | 4,847 | | | | (3,615 | ) |
| Interest income | | | (453 | ) | | | (328 | ) | | | (1,080 | ) | | | (1,148 | ) |
| Income from operations | | | 23,744 | | | | 16,754 | | | | 39,582 | | | | 27,007 | |
| Depreciation and amortization | | | 73,168 | | | | 67,262 | | | | 146,229 | | | | 135,395 | |
| Change in future service obligation | | | (1,064 | ) | | | - | | | | (1,064 | ) | | | - | |
| Facility lease expense | | | 67,175 | | | | 68,434 | | | | 135,424 | | | | 136,175 | |
| General and administrative (including non-cash | | | | | | | | | | | | | |
| stock compensation expense) | | | 31,834 | | | | 31,721 | | | | 63,786 | | | | 65,428 | |
| Amortization of entrance fees | | | (5,787 | ) | | | (5,232 | ) | | | (11,526 | ) | | | (10,342 | ) |
| Management fees | | | (1,412 | ) | | | (1,298 | ) | | | (2,807 | ) | | | (3,015 | ) |
| Facility Operating Income | | $ | 187,658 | | | $ | 177,641 | | | $ | 369,624 | | | $ | 350,648 | |
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