Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
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x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2017
or
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¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _____________ to _____________
Commission File Number: 001-32641
BROOKDALE SENIOR LIVING INC.
(Exact name of registrant as specified in its charter)
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Delaware | 20-3068069 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
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111 Westwood Place, Suite 400, Brentwood, Tennessee | 37027 |
(Address of principal executive offices) | (Zip Code) |
(615) 221-2250
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
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| Large accelerated filer | x | | Accelerated filer | ¨ | |
| Non-accelerated filer | ¨ | (Do not check if a smaller reporting company) | Smaller reporting company | ¨ | |
| | | | Emerging growth company | ¨ | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yes ¨ No x
As of August 4, 2017, 186,278,661 shares of the registrant's common stock, $0.01 par value, were outstanding (excluding unvested restricted shares).
TABLE OF CONTENTS
BROOKDALE SENIOR LIVING INC.
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2017
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PART I. | FINANCIAL INFORMATION | |
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Item 1. | | |
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Item 2. | | |
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Item 3. | | |
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Item 4. | | |
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PART II. | | |
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Item 1. | | |
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Item 1A. | | |
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Item 2. | | |
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Item 6. | | |
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
BROOKDALE SENIOR LIVING INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except stock amounts)
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| | | | | | | |
| June 30, 2017 | | December 31, 2016 |
Assets | (Unaudited) | | |
Current assets | | | |
Cash and cash equivalents | $ | 151,528 |
| | $ | 216,397 |
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Marketable securities | 29,779 |
| | — |
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Cash and escrow deposits – restricted | 38,440 |
| | 32,864 |
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Accounts receivable, net | 129,748 |
| | 141,705 |
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Assets held for sale | 91,013 |
| | 97,843 |
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Prepaid expenses and other current assets, net | 120,416 |
| | 130,695 |
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Total current assets | 560,924 |
| | 619,504 |
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Property, plant and equipment and leasehold intangibles, net | 6,423,841 |
| | 7,379,305 |
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Cash and escrow deposits – restricted | 24,206 |
| | 28,061 |
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Investment in unconsolidated ventures | 196,854 |
| | 167,826 |
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Goodwill | 710,783 |
| | 705,476 |
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Other intangible assets, net | 79,509 |
| | 83,007 |
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Other assets, net | 196,675 |
| | 234,508 |
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Total assets | $ | 8,192,792 |
| | $ | 9,217,687 |
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Liabilities and Equity | |
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Current liabilities | |
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Current portion of long-term debt | $ | 555,685 |
| | $ | 145,649 |
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Current portion of capital and financing lease obligations | 59,719 |
| | 69,606 |
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Trade accounts payable | 78,004 |
| | 77,356 |
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Accrued expenses | 289,495 |
| | 328,037 |
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Refundable entrance fees and deferred revenue | 91,312 |
| | 106,946 |
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Tenant security deposits | 3,333 |
| | 3,548 |
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Total current liabilities | 1,077,548 |
| | 731,142 |
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Long-term debt, less current portion | 3,042,123 |
| | 3,413,998 |
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Capital and financing lease obligations, less current portion | 1,531,545 |
| | 2,415,914 |
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Deferred liabilities | 241,287 |
| | 267,364 |
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Deferred tax liability | 166,326 |
| | 80,646 |
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Other liabilities | 218,061 |
| | 230,891 |
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Total liabilities | 6,276,890 |
| | 7,139,955 |
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Preferred stock, $0.01 par value, 50,000,000 shares authorized at June 30, 2017 and December 31, 2016; no shares issued and outstanding | — |
| | — |
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Common stock, $0.01 par value, 400,000,000 shares authorized at June 30, 2017 and December 31, 2016; 194,804,794 and 193,224,082 shares issued and 191,626,393 and 190,045,681 shares outstanding (including 5,358,640 and 4,608,187 unvested restricted shares), respectively | 1,916 |
| | 1,900 |
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Additional paid-in-capital | 4,113,249 |
| | 4,102,397 |
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Treasury stock, at cost; 3,178,401 shares at June 30, 2017 and December 31, 2016 | (56,440 | ) | | (56,440 | ) |
Accumulated deficit | (2,142,466 | ) | | (1,969,875 | ) |
Total Brookdale Senior Living Inc. stockholders' equity | 1,916,259 |
| | 2,077,982 |
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Noncontrolling interest | (357 | ) | | (250 | ) |
Total equity | 1,915,902 |
| | 2,077,732 |
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Total liabilities and equity | $ | 8,192,792 |
| | $ | 9,217,687 |
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See accompanying notes to condensed consolidated financial statements.
BROOKDALE SENIOR LIVING INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except per share data)
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| 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 |
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Management fees | 22,442 |
| | 18,186 |
| | 38,336 |
| | 34,966 |
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Reimbursed costs incurred on behalf of managed communities | 229,960 |
| | 186,076 |
| | 413,905 |
| | 371,304 |
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Total revenue | 1,186,472 |
| | 1,258,830 |
| | 2,403,238 |
| | 2,521,986 |
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Expense | |
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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 |
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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 |
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Transaction costs | 3,339 |
| | 441 |
| | 10,932 |
| | 1,291 |
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Facility lease expense | 84,690 |
| | 92,682 |
| | 173,497 |
| | 189,371 |
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Depreciation and amortization | 120,887 |
| | 133,394 |
| | 248,374 |
| | 260,531 |
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Asset impairment | 1,559 |
| | 4,152 |
| | 22,265 |
| | 7,527 |
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Loss on facility lease termination | 6,368 |
| | — |
| | 6,368 |
| | — |
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Costs incurred on behalf of managed communities | 229,960 |
| | 186,076 |
| | 413,905 |
| | 371,304 |
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Total operating expense | 1,156,298 |
| | 1,200,543 |
| | 2,324,938 |
| | 2,422,345 |
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Income from operations | 30,174 |
| | 58,287 |
| | 78,300 |
| | 99,641 |
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Interest income | 804 |
| | 728 |
| | 1,435 |
| | 1,430 |
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Interest expense: | |
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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 |
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(Loss) gain on sale of assets, net | (547 | ) | | (198 | ) | | (1,150 | ) | | 2,551 |
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Other non-operating income | 2,236 |
| | 2,267 |
| | 3,898 |
| | 7,305 |
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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 |
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Net income (loss) attributable to Brookdale Senior Living Inc. common stockholders | $ | (46,287 | ) | | $ | (35,450 | ) | | $ | (172,591 | ) | | $ | (84,225 | ) |
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Basic and diluted net income (loss) per share attributable to Brookdale Senior Living Inc. common stockholders | $ | (0.25 | ) | | $ | (0.19 | ) | | $ | (0.93 | ) | | $ | (0.45 | ) |
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Weighted average shares used in computing basic and diluted net income (loss) per share | 186,212 |
| | 185,825 |
| | 185,952 |
| | 185,489 |
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See accompanying notes to condensed consolidated financial statements.
BROOKDALE SENIOR LIVING INC.
CONDENSED CONSOLIDATED STATEMENT OF EQUITY
Six Months Ended June 30, 2017
(Unaudited, in thousands)
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| Common Stock | | | | | | | | | | | | |
| Shares | | Amount | | Additional Paid-In- Capital | | Treasury Stock | | Accumulated Deficit | | Stockholders' Equity | | Noncontrolling Interest | | Total Equity |
Balances at January 1, 2017 | 190,046 |
| | $ | 1,900 |
| | $ | 4,102,397 |
| | $ | (56,440 | ) | | $ | (1,969,875 | ) | | $ | 2,077,982 |
| | $ | (250 | ) | | $ | 2,077,732 |
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Compensation expense related to restricted stock grants | — |
| | — |
| | 15,020 |
| | — |
| | — |
| | 15,020 |
| | — |
| | 15,020 |
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Net income (loss) | — |
| | — |
| | — |
| | — |
| | (172,591 | ) | | (172,591 | ) | | (107 | ) | | (172,698 | ) |
Issuance of common stock under Associate Stock Purchase Plan | 80 |
| | 1 |
| | 1,053 |
| | — |
| | — |
| | 1,054 |
| | — |
| | 1,054 |
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Restricted stock, net | 1,864 |
| | 19 |
| | (19 | ) | | — |
| | — |
| | — |
| | — |
| | — |
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Shares withheld for employee taxes | (364 | ) | | (4 | ) | | (5,316 | ) | | — |
| | — |
| | (5,320 | ) | | — |
| | (5,320 | ) |
Other | — |
| | — |
| | 114 |
| | — |
| | — |
| | 114 |
| | — |
| | 114 |
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Balances at June 30, 2017 | 191,626 |
| | $ | 1,916 |
| | $ | 4,113,249 |
| | $ | (56,440 | ) | | $ | (2,142,466 | ) | | $ | 1,916,259 |
| | $ | (357 | ) | | $ | 1,915,902 |
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See accompanying notes to condensed consolidated financial statements.
BROOKDALE SENIOR LIVING INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
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| 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: | |
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Loss on extinguishment of debt, net | 96 |
| | 139 |
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Depreciation and amortization, net | 253,657 |
| | 265,129 |
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Asset impairment | 22,265 |
| | 7,527 |
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Equity in earnings of unconsolidated ventures | 3,589 |
| | (1,356 | ) |
Distributions from unconsolidated ventures from cumulative share of net earnings | 892 |
| | — |
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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 |
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Deferred income tax provision | 80,373 |
| | 332 |
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Change in deferred lease liability | (6,126 | ) | | 3,412 |
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Change in fair value of derivatives | 85 |
| | 28 |
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Loss (gain) on sale of assets, net | 1,150 |
| | (2,551 | ) |
Loss on facility lease termination | 6,368 |
| | — |
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Non-cash stock-based compensation | 15,020 |
| | 18,763 |
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Non-cash interest expense on financing lease obligations | 10,021 |
| | 13,014 |
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Amortization of (above) below market lease, net | (3,394 | ) | | (3,466 | ) |
Other | (2,969 | ) | | (3,597 | ) |
Changes in operating assets and liabilities: | |
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Accounts receivable, net | 11,957 |
| | 5,439 |
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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 |
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Deferred revenue | 9,070 |
| | (4,059 | ) |
Net cash provided by operating activities | 199,874 |
| | 177,839 |
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Cash Flows from Investing Activities | |
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Change in lease security deposits and lease acquisition deposits, net | 5 |
| | (1,538 | ) |
Change in cash and escrow deposits — restricted | (1,721 | ) | | 355 |
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Purchase of marketable securities | (29,779 | ) | | — |
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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 |
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Proceeds from sale of assets, net | 34,455 |
| | 45,584 |
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Property insurance proceeds | 2,969 |
| | 3,597 |
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Other | 947 |
| | (2,386 | ) |
Net cash used in investing activities | (261,215 | ) | | (156,736 | ) |
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Cash Flows from Financing Activities | |
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Proceeds from debt | 92,571 |
| | 192,128 |
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Repayment of debt and capital and financing lease obligations | (89,204 | ) | | (128,427 | ) |
Proceeds from line of credit | — |
| | 894,500 |
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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 |
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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 |
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Cash and cash equivalents at end of period | $ | 151,528 |
| | $ | 39,053 |
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See accompanying notes to condensed consolidated financial statements.
BROOKDALE SENIOR LIVING INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Description of Business
Brookdale Senior Living Inc. ("Brookdale" or the "Company") 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. The Company operates independent living, assisted living and dementia-care communities and continuing care retirement centers ("CCRCs"). Through its ancillary services programs, the Company also offers a range of outpatient therapy, home health and hospice services to residents of many of its communities and to seniors living outside its communities.
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited interim condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC") for quarterly reports on Form 10-Q. In the opinion of management, these financial statements include all adjustments necessary to present fairly the financial position, results of operations and cash flows of the Company as of June 30, 2017, and for all periods presented. The condensed consolidated financial statements are prepared on the accrual basis of accounting. All adjustments made have been of a normal and recurring nature. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. The Company believes that the disclosures included are adequate and provide a fair presentation of interim period results. Interim financial statements are not necessarily indicative of the financial position or operating results for an entire year. It is suggested that these interim financial statements be read in conjunction with the audited financial statements and the notes thereto, together with management's discussion and analysis of financial condition and results of operations, included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2016 filed with the SEC on February 15, 2017.
Principles of Consolidation
The consolidated financial statements include the accounts of Brookdale and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated. Investments in affiliated companies that the Company does not control, but has the ability to exercise significant influence over governance and operation, are accounted for by the equity method. The ownership interest of consolidated entities not wholly-owned by the Company are presented as noncontrolling interests in the accompanying consolidated financial statements. Noncontrolling interest represents the share of consolidated entities owned by third parties. Noncontrolling interest is adjusted for the noncontrolling holder's share of additional contributions, distributions and the proportionate share of the net income or loss of each respective entity.
The Company continually evaluates its potential variable interest entity ("VIE") relationships under certain criteria as provided for in Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 810, Consolidation ("ASC 810"). ASC 810 broadly defines a VIE as an entity with one or more of the following characteristics: (a) the total equity investment at risk is insufficient to finance the entity's activities without additional subordinated financial support; (b) as a group, the holders of the equity investment at risk lack (i) the ability to make decisions about the entity's activities through voting or similar rights, (ii) the obligation to absorb the expected losses of the entity, or (iii) the right to receive the expected residual returns of the entity; or (c) the equity investors have voting rights that are not proportional to their economic interests, and substantially all of the entity's activities either involve, or are conducted on behalf of, an investor that has disproportionately few voting rights. The Company performs this analysis on an ongoing basis and consolidates any VIEs for which the Company is determined to be the primary beneficiary, as determined by the Company's power to direct the VIE's activities and the obligation to absorb its losses or the right to receive its benefits, which are potentially significant to the VIE. Refer to Note 13 for more information about the Company's VIE relationships.
Revenue Recognition
Resident Fees
Resident fee revenue is recorded when services are rendered and consists of fees for basic housing and certain support services and fees associated with additional services such as assisted living care, skilled nursing care, ancillary services and personalized health services. Residency agreements are generally for a term of 30 days to one year, with resident fees billed monthly in advance. Revenue for certain skilled nursing services and ancillary services is recognized as services are provided, and such fees are billed monthly in arrears.
Management Fees
The Company manages certain communities under contracts which provide periodic management fee payments to the Company. Management fees are generally determined by an agreed upon percentage of gross revenues (as defined) and are recorded monthly. Certain management contracts also provide for an annual incentive fee to be paid to the Company upon achievement of certain metrics identified in the contract. Incentive fee revenue is recorded at the conclusion of the contract year at the amount due pursuant to the contractual arrangements.
Reimbursed Costs Incurred on Behalf of Managed Communities
The Company manages certain communities under contracts which provide periodic management fee payments to the Company plus reimbursements of certain operating expenses. Where the Company is the primary obligor with respect to any such operating expenses, the Company recognizes revenue when the goods have been delivered or the service has been rendered and the Company is due reimbursement. Such revenue is included in "reimbursed costs incurred on behalf of managed communities" on the condensed consolidated statements of operations. The related costs are included in "costs incurred on behalf of managed communities" on the condensed consolidated statements of operations.
Income Taxes
Income taxes are accounted for under the asset and liability approach which requires recognition of deferred tax assets and liabilities for the differences between the financial reporting and tax basis of assets and liabilities. A valuation allowance reduces deferred tax assets when it is more likely than not that some portion or all of the deferred tax assets will not be realized.
Marketable Securities
Investments in commercial paper instruments with original maturities of greater than three months and remaining maturities of less than one year are classified as marketable securities.
Fair Value of Financial Instruments
ASC 820, Fair Value Measurements and Disclosures establishes a three-level valuation hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. Categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The three levels are defined as follows:
Level 1 – Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2 – Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
Level 3 – Inputs to the valuation methodology are unobservable and significant to the fair value measurement.
Cash and cash equivalents, marketable securities, and cash and escrow deposits – restricted are reflected in the accompanying condensed consolidated balance sheets at amounts considered by management to reasonably approximate fair value due to the short maturity.
The Company estimates the fair value of its debt using a discounted cash flow analysis based upon the Company's current borrowing rate for debt with similar maturities and collateral securing the indebtedness. The Company had outstanding debt (excluding capital and financing lease obligations) with a carrying value of approximately $3.6 billion as of both June 30, 2017 and December 31, 2016. Fair value of the debt approximates carrying value in all periods. The Company's fair value of debt disclosure is classified within Level 2 of the valuation hierarchy.
Stock-Based Compensation
The Company follows ASC 718, Compensation – Stock Compensation (“ASC 718”) in accounting for its share-based payments. This guidance requires measurement of the cost of employee services received in exchange for stock compensation based on the grant-date fair value of the employee stock awards. This cost is recognized as compensation expense ratably over the employee’s requisite service period. Incremental compensation costs arising from subsequent modifications of awards after the grant date are recognized when incurred.
Certain of the Company’s employee stock awards vest only upon the achievement of performance targets. ASC 718 requires recognition of compensation cost only when achievement of performance conditions is considered probable. Consequently, the Company’s determination of the amount of stock compensation expense requires a significant level of judgment in estimating the probability of achievement of these performance targets.
On January 1, 2017, the Company adopted Accounting Standards Update ("ASU") 2016-09, Compensation – Stock Compensation: Improvements to Employee Share-Based Payment Accounting ("ASU 2016-09") and changed its policy from estimating forfeitures to recording forfeitures when they occur. The Company’s adoption of ASU 2016-09 did not have a material impact on its condensed consolidated financial statements.
For all share-based awards with graded vesting other than awards with performance-based vesting conditions, the Company records compensation expense for the entire award on a straight-line basis (or, if applicable, on the accelerated method) over the requisite service period. For graded-vesting awards with performance-based vesting conditions, total compensation expense is recognized over the requisite service period for each separately vesting tranche of the award as if the award is, in substance, multiple awards once the performance target is deemed probable of achievement. Performance goals are evaluated quarterly. If such goals are not ultimately met or it is not probable the goals will be achieved, no compensation expense is recognized and any previously recognized compensation expense is reversed.
Self-Insurance Liability Accruals
The Company is subject to various legal proceedings and claims that arise in the ordinary course of its business. Although the Company maintains general liability and professional liability insurance policies for its owned, leased and managed communities under a master insurance program, the Company's current policies provide for deductibles for each and every claim. As a result, the Company is, in effect, self-insured for claims that are less than the deductible amounts. In addition, the Company maintains a high deductible workers compensation program and a self-insured employee medical program.
The Company reviews the adequacy of its accruals related to these liabilities on an ongoing basis, using historical claims, actuarial valuations, third-party administrator estimates, consultants, advice from legal counsel and industry data, and adjusts accruals periodically. Estimated costs related to these self-insurance programs are accrued based on known claims and projected claims incurred but not yet reported. Subsequent changes in actual experience are monitored, and estimates are updated as information becomes available.
During the six months ended June 30, 2017 and June 30, 2016, the Company reduced its estimate for the amount of expected losses for general liability and professional liability and workers compensation claims, based on recent historical claims experience. The reduction in these accrued reserves decreased facility operating expense by $2.0 million and $5.6 million for the three and six months ended June 30, 2017, respectively, and by $13.7 million for each of the three and six months ended June 30, 2016.
Community Leases
The Company, as lessee, makes a determination with respect to each of its community leases as to whether each should be accounted for as an operating lease or capital lease. The classification criteria is based on estimates regarding the fair value of the leased community, minimum lease payments, effective cost of funds, the economic life of the community and certain other terms in the lease agreements. In a business combination, the Company assumes the lease classification previously determined by the prior lessee absent a modification, as determined by ASC 840, Leases ("ASC 840"), in the assumed lease agreement. Payments made under operating leases are accounted for in the Company's consolidated statements of operations as lease expense for actual rent paid plus or minus a straight-line adjustment for estimated minimum lease escalators and amortization of deferred gains in situations where sale-leaseback transactions have occurred.
For capital lease and lease financing obligation arrangements, a liability is established on the Company's condensed consolidated balance sheet representing the present value of the future minimum lease payments and a residual value for financing leases and
a corresponding long-term asset is recorded in property, plant and equipment and leasehold intangibles in the condensed consolidated balance sheet. For capital lease assets, the asset is depreciated over the remaining lease term unless there is a bargain purchase option in which case the asset is depreciated over the useful life. For financing lease assets, the asset is depreciated over the useful life of the asset. Leasehold improvements purchased during the term of the lease are amortized over the shorter of their economic life or the lease term.
All of the Company's leases contain fixed or formula-based rent escalators. To the extent that the escalator increases are tied to a fixed index or rate, lease payments are accounted for on a straight-line basis over the life of the lease. In addition, all rent-free or rent holiday periods are recognized in lease expense on a straight-line basis over the lease term, including the rent holiday period.
The community leases contain customary terms, which may include assignment and change of control restrictions, maintenance and capital expenditure obligations, termination provisions and financial performance covenants, such as net worth and minimum lease coverage ratios. Failure to comply with these covenants could result in an event of default and/or trigger cross-default provisions in our outstanding debt and other lease documents. Further, an event of default related to an individual property or limited number of properties within a master lease portfolio would result in a default on the entire master lease portfolio and could trigger cross-default provisions in our other outstanding debt and lease documents. Certain leases contain cure provisions generally requiring the posting of an additional lease security deposit if the required covenant is not met.
Sale-leaseback accounting is applied to transactions in which an owned community is sold and leased back from the buyer if certain continuing involvement criteria are met. Under sale-leaseback accounting, the Company removes the community and related liabilities from the condensed consolidated balance sheet. Gain on the sale is deferred and recognized as a reduction of facility lease expense for operating leases and a reduction of interest expense for capital leases.
For leases in which the Company is involved with the construction of a building, the Company accounts for the leases during the construction period under the provisions of ASC 840. If the Company concludes that it has substantively all of the risks of ownership during construction of a leased property and therefore is deemed the owner of the project for accounting purposes, it records an asset and related financing obligation for the amount of total project costs related to construction in progress. Once construction is complete, the Company considers the requirements under ASC Subtopic 840-40. If the arrangement qualifies for sale-leaseback accounting, the Company removes the assets and related liabilities from the condensed consolidated balance sheet. If the arrangement does not qualify for sale-leaseback accounting, the Company continues to amortize the financing obligation and depreciate the assets over the lease term.
New Accounting Pronouncements
In January 2017, the FASB issued ASU 2017-04, Intangibles – Goodwill and Other: Simplifying the Test for Goodwill Impairment ("ASU 2017-04"). ASU 2017-04 removes Step 2 from the goodwill impairment test. Under ASU 2017-04, if a reporting unit's carrying amount exceeds its fair value, an impairment charge will be recorded based on the difference, with the impairment charge limited to the amount of goodwill allocated to the reporting unit. The Company adopted ASU 2017-04 on a prospective basis on January 1, 2017. There was no impact on the Company's condensed consolidated financial statements as a result of the adoption of ASU 2017-04.
In January 2017, the FASB issued ASU 2017-01, Business Combinations: Clarifying the Definition of a Business ("ASU 2017-01"). ASU 2017-01 clarifies the definition of a business to assist companies in determining whether transactions should be accounted for as an asset acquisition or a business combination. Under ASU 2017-01, if substantially all of the fair value of the assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business and the transaction is accounted for as an asset acquisition. Transaction costs associated with asset acquisitions are capitalized while those associated with business combinations are expensed as incurred. The amendments are effective for the Company's fiscal year beginning January 1, 2018 and early adoption is permitted, including within interim periods. Upon adoption, the Company anticipates that the changes to the definition of a business may result in acquisitions of real estate, communities or senior housing operating companies being accounted for as asset acquisitions.
In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows: Restricted Cash, a consensus of the FASB Emerging Issues Task Force ("ASU 2016-18"). ASU 2016-18 intends to address the diversity in practice that exists in the classification and presentation of changes in restricted cash on the statement of cash flows. The amendments require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. The amendments are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, and early adoption is permitted. Upon adoption, the changes required by ASU 2016-18 must be applied retrospectively to all periods presented. The Company is currently evaluating the impact the adoption of ASU 2016-18 will have on its condensed consolidated financial statements and disclosures.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows – Classification of Certain Cash Receipts and Cash Payments ("ASU 2016-15"). ASU 2016-15 clarifies how cash receipts and cash payments in certain transactions are presented in the statement of cash flows. Among other clarifications, the amendments in ASU 2016-15 provide additional guidance on the classification within the statement of cash flows for the following transactions:
| |
• | debt prepayment or debt extinguishment costs will be classified within financing activities; |
| |
• | the portion of cash payments attributable to accreted interest at the settlement of debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate will be classified within operating activities; |
| |
• | proceeds from insurance settlements will be classified based on the nature of the related insurance coverage; and |
| |
• | companies must elect to classify distributions received from equity method investees using either a cumulative earnings approach or a nature of the distributions approach. |
ASU 2016-15 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, and early adoption is permitted. Upon adoption, the changes in classification within the statement of cash flows must be applied retrospectively to all periods presented. The Company is currently evaluating the impact the adoption of ASU 2016-15 will have on its condensed consolidated financial statements and disclosures.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"). ASU 2016-13 replaces the current incurred loss impairment methodology for credit losses with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. ASU 2016-13 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted for fiscal years beginning after December 15, 2018. The Company is currently evaluating the impact the adoption of ASU 2016-13 will have on its condensed consolidated financial statements and disclosures.
In March 2016, the FASB issued ASU 2016-09, which is intended to simplify the accounting for share-based payment transactions, including the accounting for income taxes and forfeitures, as well as the classification of awards and classification on the statement of cash flows. The Company adopted ASU 2016-09 on January 1, 2017 and changed its accounting policy from estimating forfeitures to recording forfeitures when they occur. The Company’s adoption of ASU 2016-09 did not have a material impact on its condensed consolidated financial statements. There was no current impact on the Company’s condensed consolidated statement of operations for the three and six months ended June 30, 2017 from the adoption of ASU 2016-09 as the Company is in a net operating loss position and any excess tax benefits require a full valuation allowance. See Note 12 for more information about the Company's deferred income taxes. The changes have been applied using a modified retrospective approach in accordance with ASU 2016-09 and prior periods have not been adjusted.
In February 2016, the FASB issued ASU 2016-02, Leases ("ASU 2016-02"). ASU 2016-02 amends the existing accounting principles for the recognition, measurement, presentation and disclosure of leases for both lessees and lessors. ASU 2016-02 requires a lessee to recognize a right-of-use asset and a lease liability on the balance sheet for most leases. Additionally, ASU 2016-02 makes targeted changes to lessor accounting. ASU 2016-02 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, and early adoption is permitted. The Company is currently evaluating the impact that the adoption of ASU 2016-02 will have on its condensed consolidated financial statements and disclosures.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers ("ASU 2014-09"). ASU 2014-09 affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets. The five step model defined by ASU 2014-09 requires the Company to (i) identify the contracts with the customer, (ii) identify the performance obligations in the contact, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract and (v) recognize revenue when each performance obligation is satisfied. Revenue will be recognized when promised goods or services are transferred to the customer in an amount that reflects the consideration expected in exchange for those goods or services. ASU 2014-09 may be applied retrospectively to each prior period (full retrospective) or retrospectively with the cumulative effect recognized as of the date of initial application (modified retrospective). ASU 2014-09, as amended, is effective for the Company's fiscal year beginning January 1, 2018, and, at that time, the Company expects to adopt the new standard under the modified retrospective approach for contracts with customers. Under the modified retrospective approach, the guidance is applied to the most current period presented, recognizing the cumulative effect of the adoption change as an adjustment to beginning retained earnings. The Company continues to evaluate the impact the adoption of ASU 2014-09 will have on its condensed consolidated financial statements and disclosures. The evaluation includes identifying revenue streams by like contracts to allow for ease of implementation. In addition, the Company is monitoring specific developments for the senior living industry and evaluating potential changes to our business processes, systems, and controls to
support the recognition and disclosure under the new standard. Preliminary conclusions based upon procedures to-date include the following:
| |
• | Resident Fees: The Company does not anticipate that the adoption of ASU 2014-09 will result in a significant change to the amount and timing of the recognition of resident fee revenue. |
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• | Management Fees and Reimbursed Costs Incurred on Behalf of Managed Communities: The Company manages certain communities under contracts which provide for payment to the Company of a periodic management fee plus reimbursement of certain operating expenses. The Company does not anticipate that there will be any significant change to the amount and timing of revenue recognized for these periodic management fees. Certain management contracts also provide for an annual incentive fee to be paid to the Company upon achievement of certain metrics identified in the contract. Upon adoption of ASU 2014-09, the Company anticipates that incentive fee revenue may be recognized earlier during the annual contract period. The Company is still evaluating the performance obligations and assessing the transfer of control for each operating service identified in the contracts, which may impact the amount of revenue recognized for reimbursed costs incurred on behalf of managed communities with no net impact to the amount of income from operations. |
| |
• | Equity in Earnings (Loss) of Unconsolidated Ventures: Certain of the Company's unconsolidated ventures accounted for under the equity method have residency agreements which require the resident to pay an upfront entrance fee prior to moving into the community and a portion of the upfront entrance fee is non-refundable. The Company's unconsolidated ventures are still evaluating the impact of the adoption of ASU 2014-09, which may impact the recognition of equity in earnings of unconsolidated ventures. |
Additionally, real estate sales are within the scope of ASU 2014-09, as amended by ASU 2017-05, Other Income – Gains and Losses from the Derecognition of Nonfinancial Assets ("ASU 2017-05"). ASU 2017-05 clarifies the scope of subtopic 610-20, Other Income - Gains and Losses from Derecognition of Nonfinancial Assets and adds guidance for partial sales of nonfinancial assets. Under ASU 2014-09 and ASU 2017-05 the income recognition for real estate sales is largely based on the transfer of control versus continuing involvement under the current guidance. As a result, more transactions may qualify as sales of real estate and gains or losses may be recognized sooner. Upon adoption, the Company will apply the five step revenue model to all future sales of real estate. The Company may elect to adopt ASU 2014-09 and ASU 2017-05 for contracts with noncustomers utilizing either a full retrospective approach or a modified retrospective approach. The Company has deferred gains related to completed sales of real estate which may be recognized as a cumulative adjustment to retained earnings upon adoption if the full retrospective approach is elected for contracts with noncustomers. The Company continues to evaluate the impact the adoption of ASU 2014-09 and ASU 2017-05 will have on its condensed consolidated financial statements and disclosures.
Reclassifications
Certain prior period amounts have been reclassified to conform to the current financial statement presentation, with no effect on the Company's condensed consolidated financial position or results of operations.
3. Earnings Per Share
Basic earnings per share ("EPS") is calculated by dividing net income by the weighted average number of shares of common stock outstanding. Diluted EPS includes the components of basic EPS and also gives effect to dilutive common stock equivalents. For purposes of calculating basic and diluted earnings per share, vested restricted stock awards are considered outstanding. Under the treasury stock method, diluted EPS reflects the potential dilution that could occur if securities or other instruments that are convertible into common stock were exercised or could result in the issuance of common stock. Potentially dilutive common stock equivalents include unvested restricted stock, restricted stock units and convertible debt instruments and warrants.
During the three and six months ended June 30, 2017 and 2016, the Company reported a consolidated net loss. As a result of the net loss, unvested restricted stock, restricted stock units and convertible debt instruments and warrants were antidilutive for each period and were not included in the computation of diluted weighted average shares. The weighted average restricted stock and restricted stock units excluded from the calculations of diluted net loss per share were 5.5 million and 4.5 million for the three months ended June 30, 2017 and 2016, respectively, and 5.4 million and 4.2 million for the six months ended June 30, 2017 and 2016, respectively.
The calculation of diluted weighted average shares excludes the impact of conversion of the outstanding principal amount of $316.3 million of the Company's 2.75% convertible senior notes due June 15, 2018. As of June 30, 2017 and 2016, the maximum number of shares issuable upon conversion of the notes is approximately 13.8 million (after giving effect to additional make-whole shares issuable upon conversion in connection with the occurrence of certain events); however it is the Company's current
intent and policy to settle the principal amount of the notes in cash upon conversion. The maximum number of shares issuable upon conversion of the notes in excess of the amount of principal that would be settled in cash is approximately 3.0 million. In addition, the calculation of diluted weighted average shares excludes the impact of the exercise of warrants to acquire the Company's common stock. As of June 30, 2017 and 2016, the number of shares issuable upon exercise of the warrants was approximately 10.8 million.
4. Acquisitions, Dispositions and Other Significant Transactions
The Company completed dispositions, through sales and lease terminations, of 130 communities during the period from January 1, 2016 through June 30, 2017. The Company's condensed consolidated financial statements include resident fee revenue of $6.3 million and $116.2 million, facility operating expenses of $7.5 million and $88.5 million, and cash lease payments of $0.6 million and $26.4 million for the 130 communities for the three months ended June 30, 2017 and June 30, 2016, respectively. The Company's condensed consolidated financial statements include resident fee revenue of $82.3 million and $236.1 million, facility operating expenses of $62.9 million and $177.0 million, and cash lease payments of $23.7 million and $52.4 million for the 130 communities for the six months ended June 30, 2017 and June 30, 2016, respectively.
Formation of Venture with Blackstone
On March 29, 2017, the Company and affiliates of Blackstone Real Estate Advisors VIII L.P. (collectively, "Blackstone") formed a venture (the “Blackstone Venture”) that acquired 64 senior housing communities for a purchase price of $1.1 billion. The Company had previously leased the 64 communities from HCP, Inc. ("HCP") under long-term lease agreements with a remaining average lease term of approximately 12 years. At the closing, the Blackstone Venture purchased the 64-community portfolio from HCP subject to the existing leases, and the Company contributed its leasehold interests for 62 communities and a total of $179.2 million in cash to purchase a 15% equity interest in the Blackstone Venture, terminate leases, and fund its share of closing costs. As of the formation date, the Company continued to operate two of the communities under lease agreements and began managing 60 of the communities on behalf of the venture under a management agreement with the venture. The two remaining leases will be terminated, pending certain regulatory and other conditions, at which point the Company will manage the communities; however, there can be no assurance that the terminations will occur or, if they do, when the actual terminations will occur. Two of the communities are managed by a third party for the venture.
The results and financial position of the 62 communities for which leases were terminated were deconsolidated from the Company prospectively upon formation of the Blackstone Venture. The results of operations of the 62 communities for which leases were terminated were reported in the following segments within the condensed consolidated financial statements through the formation date: Assisted Living (47 communities), Retirement Centers (eight communities) and CCRCs-Rental (seven communities). The Company's interest in the venture is accounted for under the equity method of accounting. Under the terms of the venture agreement, the Company may be entitled to distributions which are less than or in excess of the Company's 15% equity interest based upon specified performance criteria.
Initially, the Company determined that the contributed carrying value of the Company's investment was $66.8 million, representing the amount by which the $179.2 million cash contribution exceeded the carrying value of the Company's liabilities under operating, capital and financing leases contributed by the Company net of the carrying value of the assets under such operating, capital and financing leases. However, the Company estimated the fair value of its 15% equity interest in the Blackstone Venture at inception to be $47.1 million. As a result, the Company recorded a $19.7 million charge within asset impairment expense for the three months ended March 31, 2017 for the amount of the contributed carrying value in excess of the estimated fair value of the Company's investment.
Additionally, these transactions related to the Blackstone Venture required the Company to record a significant increase to the Company's existing tax valuation allowance, after considering the change in the Company's future reversal of estimated timing differences resulting from these transactions, primarily due to removing the deferred positions related to the contributed leases. During the three months ended March, 31, 2017, the Company recorded a provision for income taxes to establish an additional $85.0 million of valuation allowance against its federal and state net operating loss carryforwards and tax credits as the Company anticipates these carryforwards and credits will not be utilized prior to expiration. See Note 12 for more information about the Company's deferred income taxes.
Community Dispositions
The Company began 2017 with 16 of its owned communities classified as held for sale as of December 31, 2016 and entered into an agreement to sell one community and to terminate the lease for one adjacent community during the three months ended March
31, 2017. During the six months ended June 30, 2017, the Company completed the sale of three communities and terminated the leases for eight communities. The results of operations of these communities are reported in the Assisted Living (eight communities) and CCRCs - Rental (three communities) segments within the condensed consolidated financial statements through the respective disposition dates. For the three and six months ended June 30, 2017, the Company recognized a $6.4 million net loss on facility lease termination primarily from the write-off of assets subject to terminated community lease agreements. As of June 30, 2017, 14 communities were classified as held for sale.
As of June 30, 2017, $91.0 million was recorded as assets held for sale and $60.5 million of mortgage debt was included in the current portion of long-term debt within the condensed consolidated balance sheet with respect to the 14 communities held for sale as of such date. This debt will either be repaid with the proceeds from the sales or be assumed by the prospective purchasers. The results of operations of the 14 communities are reported in the following segments within the condensed consolidated financial statements: Assisted Living (12 communities) and CCRCs-Rental (two communities). The 14 communities had resident fee revenue of $9.4 million and $9.7 million and facility operating expenses of $7.9 million and $8.1 million for the three months ended June 30, 2017 and June 30, 2016, respectively. The 14 communities had resident fee revenue of $18.9 million and $19.7 million and facility operating expenses of $15.6 million and $16.3 million for the six months ended June 30, 2017 and June 30, 2016, respectively.
The closings of the sales of the unsold communities classified as held for sale are subject to receipt of regulatory approvals and satisfaction of other customary closing conditions and are expected to occur during fiscal 2017; however, there can be no assurance that the transactions will close or, if they do, when the actual closings will occur.
Dispositions and Restructurings of Leased Communities
On November 1, 2016, the Company announced that it had entered into agreements to, among other things, terminate triple-net leases with respect to 97 communities, four of which were contributed to an existing unconsolidated venture in which the Company holds an equity interest and 64 of which were acquired by the Blackstone Venture. In addition to the formation of the Blackstone Venture described above, the transactions include the following components:
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• | The Company and HCP agreed to terminate triple-net leases with respect to 25 communities, which the Company expects to occur in stages through the end of fiscal 2017. The results of operations of the 25 communities are reported in the following segments within the consolidated financial statements: Assisted Living (23 communities) and CCRCs-Rental (two communities). The 25 communities had resident fee revenue of $18.6 million and $18.5 million, facility operating expenses of $15.0 million and $14.6 million, and cash lease payments of $2.8 million and $4.9 million for the three months ended June 30, 2017 and June 30, 2016, respectively. The 25 communities had resident fee revenue of $36.9 million and $36.5 million, facility operating expenses of $29.9 million and $29.4 million, and cash lease payments of $5.5 million and $9.8 million for the six months ended June 30, 2017 and June 30, 2016, respectively. |
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• | The Company and HCP agreed to terminate triple-net leases with respect to eight communities. HCP agreed to contribute immediately thereafter four of such communities, to an existing unconsolidated venture with HCP in which the Company has a 10% equity interest. During the three months ended December 31, 2016, the triple-net leases with respect to seven communities were terminated and HCP contributed four of the communities to the existing unconsolidated venture. The triple-net lease with respect to the remaining community was terminated during January 2017. The results of operations of the eight communities are reported in the following segments within the condensed consolidated financial statements through the respective disposition dates: Assisted Living (six communities), Retirement Centers (one community) and CCRCs-Rental (one community). |
5. Stock-Based Compensation
Current year grants of restricted stock under the Company's 2014 Omnibus Incentive Plan were as follows (amounts in thousands except for value per share):
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| | | | | | | | | | |
| Shares Granted | | Value Per Share | | Total Value |
Three months ended March 31, 2017 | 2,392 |
| | $ | 14.84 |
| | $ | 35,497 |
|
Three months ended June 30, 2017 | 71 |
| | $ | 13.11 |
| | $ | 937 |
|
6. Goodwill and Other Intangible Assets, Net
The following is a summary of the carrying amount of goodwill as of June 30, 2017 and December 31, 2016 presented on an operating segment basis (in thousands):
|
| | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2017 | | December 31, 2016 |
| Gross Carrying Amount | | Dispositions and Other Reductions | | Net | | Gross Carrying Amount | | Dispositions and Other Reductions | | Net |
Retirement Centers | $ | 28,141 |
| | $ | (820 | ) | | $ | 27,321 |
| | $ | 28,141 |
| | $ | (820 | ) | | $ | 27,321 |
|
Assisted Living | 605,469 |
| | (48,817 | ) | | 556,652 |
| | 600,162 |
| | (48,817 | ) | | 551,345 |
|
Brookdale Ancillary Services | 126,810 |
| | — |
| | 126,810 |
| | 126,810 |
| | — |
| | 126,810 |
|
Total | $ | 760,420 |
| | $ | (49,637 | ) | | $ | 710,783 |
| | $ | 755,113 |
| | $ | (49,637 | ) | | $ | 705,476 |
|
Goodwill is tested for impairment annually with a test date of October 1 or sooner if indicators of impairment are present. The Company determined no impairment was necessary for the six months ended June 30, 2017. Factors the Company considers important in its analysis, which could trigger an impairment of such assets, include significant underperformance relative to historical or projected future operating results, significant negative industry or economic trends, a significant decline in the Company's stock price for a sustained period and a decline in its market capitalization below net book value. A change in anticipated operating results or the other metrics indicated above could necessitate further analysis of potential impairment at an interval prior to the Company's annual measurement date.
The following is a summary of other intangible assets at June 30, 2017 and December 31, 2016 (in thousands):
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| | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2017 | | December 31, 2016 |
| Gross Carrying Amount | | Accumulated Amortization | | Net | | Gross Carrying Amount | | Accumulated Amortization | | Net |
Community purchase options | $ | 4,738 |
| | $ | — |
| | $ | 4,738 |
| | $ | 4,738 |
| | $ | — |
| | $ | 4,738 |
|
Health care licenses | 65,526 |
| | — |
| | 65,526 |
| | 65,126 |
| | — |
| | 65,126 |
|
Trade names | 27,800 |
| | (22,425 | ) | | 5,375 |
| | 27,800 |
| | (21,135 | ) | | 6,665 |
|
Management contracts | 13,531 |
| | (9,661 | ) | | 3,870 |
| | 13,531 |
| | (7,053 | ) | | 6,478 |
|
Total | $ | 111,595 |
| | $ | (32,086 | ) | | $ | 79,509 |
| | $ | 111,195 |
| | $ | (28,188 | ) | | $ | 83,007 |
|
Amortization expense related to definite-lived intangible assets for the three months ended June 30, 2017 and 2016 was $3.0 million and $3.9 million, respectively and for the six months ended June 30, 2017 and 2016 was $3.9 million and $6.8 million, respectively. Health care licenses were determined to be indefinite-lived intangible assets and are not subject to amortization. The community purchase options are not currently amortized, but will be added to the cost basis of the related communities if the option is exercised, and will then be depreciated over the estimated useful life of the community.
7. Property, Plant and Equipment and Leasehold Intangibles, Net
As of June 30, 2017 and December 31, 2016, net property, plant and equipment and leasehold intangibles, which include assets under capital and financing leases, consisted of the following (in thousands):
|
| | | | | | | |
| June 30, 2017 | | December 31, 2016 |
Land | $ | 451,875 |
| | $ | 455,307 |
|
Buildings and improvements | 5,058,293 |
| | 5,053,204 |
|
Leasehold improvements | 119,874 |
| | 126,325 |
|
Furniture and equipment | 982,846 |
| | 974,516 |
|
Resident and leasehold operating intangibles | 611,908 |
| | 705,000 |
|
Construction in progress | 52,399 |
| | 69,803 |
|
Assets under capital and financing leases | 2,040,965 |
| | 2,879,996 |
|
| 9,318,160 |
| | 10,264,151 |
|
Accumulated depreciation and amortization | (2,894,319 | ) | | (2,884,846 | ) |
Property, plant and equipment and leasehold intangibles, net | $ | 6,423,841 |
| | $ | 7,379,305 |
|
Long-lived assets with definite useful lives are depreciated or amortized on a straight-line basis over their estimated useful lives (or, in certain cases, the shorter of their estimated useful lives or the lease term) and are tested for impairment whenever indicators of impairment arise. The Company recorded $1.6 million and $2.6 million of non-cash charges within asset impairment expense for the three and six months ended June 30, 2017, respectively, for property damage at certain communities and the cancellation of certain community expansion and redevelopment projects.
8. Debt
Long-term Debt and Capital and Financing Lease Obligations
Long-term debt and capital and financing lease obligations consist of the following (in thousands):
|
| | | | | | | |
| June 30, 2017 | | December 31, 2016 |
Mortgage notes payable due 2017 through 2047; weighted average interest rate of 4.63% for the six months ended June 30, 2017, less debt discount and deferred financing costs of $7.8 million and $4.5 million at June 30, 2017 and December 31, 2016, respectively (weighted average interest rate of 4.50% in 2016) | $ | 3,206,593 |
| | $ | 3,184,229 |
|
Capital and financing lease obligations payable through 2032; weighted average interest rate of 7.96% for the six months ended June 30, 2017 (weighted average interest rate of 8.08% in 2016) | 1,591,264 |
| | 2,485,520 |
|
Convertible notes payable in aggregate principal amount of $316.3 million, less debt discount and deferred financing costs of $13.7 million and $20.9 million at June 30, 2017 and December 31, 2016, respectively, interest at 2.75% per annum, due June 15, 2018 | 302,501 |
| | 295,397 |
|
Construction financing (weighted average interest rate of 8.00% in 2016) | — |
| | 3,644 |
|
Notes payable issued to finance insurance premiums, weighted average interest rate of 2.94% for the six months ended June 30, 2017, due 2017 | 10,828 |
| | — |
|
Other notes payable, weighted average interest rate of 5.80% for the six months ended June 30, 2017 (weighted average interest rate of 5.33% in 2016) and maturity dates ranging from 2018 to 2021 | 77,886 |
| | 76,377 |
|
Total long-term debt and capital and financing lease obligations | 5,189,072 |
| | 6,045,167 |
|
Less current portion | 615,404 |
| | 215,255 |
|
Total long-term debt and capital and financing lease obligations, less current portion | $ | 4,573,668 |
| | $ | 5,829,912 |
|
Credit Facilities
On December 19, 2014, the Company entered into a Fourth Amended and Restated Credit Agreement with General Electric Capital Corporation (which has since assigned its interest to Capital One Financial Corporation), as administrative agent, lender and swingline lender, and the other lenders from time to time parties thereto. The agreement currently provides for a total commitment amount of $400.0 million, comprised of a $400.0 million revolving credit facility (with a $50.0 million sublimit for letters of credit and a $50.0 million swingline feature to permit same day borrowing) and an option to increase the revolving credit facility by an additional $250.0 million, subject to obtaining commitments for the amount of such increase from acceptable lenders. The maturity date is January 3, 2020, and amounts drawn under the facility bear interest at 90-day LIBOR plus an applicable margin from a range of 2.50% to 3.50%. The applicable margin varies based on the percentage of the total commitment drawn, with a 2.50% margin at utilization equal to or lower than 35%, a 3.25% margin at utilization greater than 35% but less than or equal to 50%, and a 3.50% margin at utilization greater than 50%. The quarterly commitment fee on the unused portion of the facility is 0.25% per annum when the outstanding amount of obligations (including revolving credit, swingline and term loans and letter of credit obligations) is greater than or equal to 50% of the total commitment amount or 0.35% per annum when such outstanding amount is less than 50% of the total commitment amount.
Amounts drawn on the facility may be used to finance acquisitions, fund working capital and capital expenditures and for other general corporate purposes.
The facility is secured by a first priority mortgage on certain of the Company's communities. In addition, the agreement permits the Company to pledge the equity interests in subsidiaries that own other communities (rather than mortgaging such communities), provided that loan availability from pledged assets cannot exceed 10% of loan availability from mortgaged assets. The availability under the line will vary from time to time as it is based on borrowing base calculations related to the appraised value and performance of the communities securing the facility.
The agreement contains typical affirmative and negative covenants, including financial covenants with respect to minimum consolidated fixed charge coverage and minimum consolidated tangible net worth. A violation of any of these covenants could result in a default under the credit agreement, which would result in termination of all commitments under the agreement and all amounts owing under the agreement becoming immediately due and payable and/or could trigger cross default provisions in our other outstanding debt and lease agreements.
As of June 30, 2017, there was no outstanding balance under this credit facility and there were $35.3 million of letters of credit outstanding under this credit facility. In addition to the sublimit for letters of credit on this credit facility, the Company also had separate letter of credit facilities of up to $64.5 million in the aggregate as of June 30, 2017. Letters of credit totaling $64.4 million had been issued under these separate facilities as of that date.
2017 Financings
In June 2017, the Company obtained a $54.7 million non-recourse 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 the non-recourse first mortgages on 22 communities. The $221.3 million of proceeds from the refinancing were primarily 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 of 30-day LIBOR plus a margin of 244 basis points.
The Company plans to repay debt maturing in the upcoming year through current liquidity, future operating cash flows, and both normal-course refinancings and future refinancing of under-levered assets.
Convertible Debt
In June 2011, the Company completed a registered offering of $316.3 million aggregate principal amount of 2.75% convertible senior notes due June 15, 2018 (the "Notes"). As of June 30, 2017, the $302.5 million carrying value of the Notes was included in the current portion of long-term debt within the condensed consolidated balance sheet. It is the Company’s current intent and policy to settle the principal amount of the Notes (or, if less, the amount of the conversion obligation) in cash upon conversion.
As of June 30, 2017, the Company is in compliance with the financial covenants of its outstanding debt and lease agreements.
9. Litigation
The Company has been and is currently involved in litigation and claims, including putative class action claims from time to time, incidental to the conduct of its business which are comparable to other companies in the senior living industry. Certain claims and lawsuits allege large damage amounts and may require significant costs to defend and resolve. As a result, the Company maintains general liability and professional liability insurance policies in amounts and with coverage and deductibles the Company believes are adequate, based on the nature and risks of its business, historical experience and industry standards. The Company's current policies provide for deductibles for each claim. Accordingly, the Company is, in effect, self-insured for claims that are less than the deductible amounts and for claims or portions of claims that are not covered by such policies.
Similarly, the senior living industry is continuously subject to scrutiny by governmental regulators, which could result in litigation related to regulatory compliance matters. In addition, as a result of the Company's participation in the Medicare and Medicaid programs, the Company is subject to various governmental reviews, audits and investigations, including but not limited to audits under various government programs, such as the Recovery Act Contractors (RAC) and Zone Program Integrity Contractors (ZPIC) programs. The costs to respond to and defend such reviews, audits and investigations may be significant, and an adverse determination could result in the Company's refunding amounts the Company has been paid under such programs, the imposition of fines, penalties and other sanctions (including payment suspensions) on the Company, the Company's loss of its right to participate in government reimbursement programs and/or damage to the Company's business and reputation.
10. Supplemental Disclosure of Cash Flow Information
|
| | | | | | | |
| Six Months Ended June 30, |
(in thousands) | 2017 | | 2016 |
Supplemental Disclosure of Cash Flow Information: | | | |
Interest paid | $ | 155,389 |
| | $ | 175,386 |
|
Income taxes paid, net of refunds | $ | 1,876 |
| | $ | 1,997 |
|
Additions to property, plant and equipment and leasehold intangibles, net: | |
| | |
|
Property, plant and equipment and leasehold intangibles, net | $ | 91,014 |
| | $ | 158,841 |
|
Accounts payable | (1,444 | ) | | 31,219 |
|
Net cash paid | $ | 89,570 |
| | $ | 190,060 |
|
Acquisition of assets, net of related payables: | |
| | |
|
Property, plant and equipment and leasehold intangibles, net | $ | — |
| | $ | 19,457 |
|
Other intangible assets, net | 400 |
| | (7,300 | ) |
Net cash paid | $ | 400 |
| | $ | 12,157 |
|
Proceeds from sale of assets, net: | |
| | |
|
Prepaid expenses and other assets | $ | (13,954 | ) | | $ | (319 | ) |
Assets held for sale | (20,952 | ) | | (42,714 | ) |
Property, plant and equipment and leasehold intangibles, net | (11,598 | ) | | — |
|
Investments in unconsolidated ventures | (26,301 | ) | | — |
|
Long-term debt | 7,552 |
| | — |
|
Refundable entrance fees and deferred revenue | 30,771 |
| | — |
|
Other liabilities | 39 |
| | — |
|
Loss (gain) on sale of assets, net | 1,150 |
| | (2,551 | ) |
(Gain) loss on lease termination | (1,162 | ) | | — |
|
Net cash received | $ | (34,455 | ) | | $ | (45,584 | ) |
Formation of the Blackstone Venture: | | | |
Prepaid expenses and other assets | $ | (8,173 | ) | | $ | — |
|
Property, plant and equipment and leasehold intangibles, net | (768,897 | ) | | — |
|
Investments in unconsolidated ventures | 66,816 |
| | — |
|
Capital and financing lease obligations | 879,959 |
| | — |
|
Deferred liabilities | 7,504 |
| | — |
|
Other liabilities | 1,998 |
| | — |
|
Net cash paid | $ | 179,207 |
| | $ | — |
|
Supplemental Schedule of Non-cash Operating, Investing and Financing Activities: | |
| | |
|
Assets designated as held for sale: | |
| | |
|
Prepaid expenses and other assets | $ | (106 | ) | | $ | (836 | ) |
Assets held for sale | 14,122 |
| | 288,659 |
|
Property, plant and equipment and leasehold intangibles, net | (14,016 | ) | | (261,639 | ) |
Goodwill | — |
| | (28,568 | ) |
Asset impairment | — |
| | 2,384 |
|
Net | $ | — |
| | $ | — |
|
11. Facility Operating Leases
A summary of facility lease expense and the impact of straight-line adjustment and amortization of (above) below market rents and deferred gains are as follows (in thousands):
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Cash basis payment | $ | 90,599 |
| | $ | 96,031 |
| | $ | 185,203 |
| | $ | 191,611 |
|
Straight-line (income) expense | (3,119 | ) | | (523 | ) | | (6,126 | ) | | 3,412 |
|
Amortization of (above) below market lease, net | (1,697 | ) | | (1,733 | ) | | (3,394 | ) | | (3,466 | ) |
Amortization of deferred gain | (1,093 | ) | | (1,093 | ) | | (2,186 | ) | | (2,186 | ) |
Facility lease expense | $ | 84,690 |
| | $ | 92,682 |
| | $ | 173,497 |
| | $ | 189,371 |
|
12. Income Taxes
The difference between the tax statutory rate and the Company's effective tax rates for the three and six months ended June 30, 2017 and 2016 was primarily due to the valuation allowance against the Company's deferred tax assets.
The valuation allowance during the three months ended June 30, 2017 reflects an additional allowance of $15.2 million established against the current period operating loss. The increase in the valuation allowance during the six months ended June 30, 2017 is comprised of multiple components. The increase includes $85.0 million related to the removal of future timing differences as a result of the formation of the Blackstone Venture and termination of leases associated therewith. In addition, the Company increased its valuation allowance by $48.5 million upon the adoption of ASU 2016-09. The $48.5 million offsets the increase to the Company's net operating loss carryforward position previously reflected in an additional paid-in capital pool, and accordingly, does not impact the current period income tax position. The remaining change of approximately $27.0 million for the six months ended June 30, 2017 reflects the allowance established against the current period operating loss.
The Company recorded an aggregate deferred federal, state and local tax benefit of $18.2 million and $31.7 million as a result of the operating loss for the three and six months ended June 30, 2017, respectively, which was offset by an increase in the valuation allowance of $15.2 million and $27.0 million, respectively. The Company recorded an aggregate deferred federal, state, and local tax benefit of $3.6 million and $16.8 million as a result of the operating loss for the three and six months ended June 30, 2016, respectively, which was offset by an increase in the valuation allowance of $3.0 million and $17.2 million, respectively.
The Company evaluates its deferred tax assets each quarter to determine if a valuation allowance is required based on whether it is more likely than not that some portion of the deferred tax asset would not be realized. The Company's valuation allowance as of June 30, 2017 and December 31, 2016 is $424.9 million and $264.3 million, respectively.
The Company recorded interest charges related to its tax contingency reserve for cash tax positions for the three months ended June 30, 2017 and 2016 which are included in income tax expense or benefit for the period. Tax returns for years 2012 through 2015 are subject to future examination by tax authorities. In addition, the net operating losses from prior years are subject to adjustment under examination.
13. Variable Interest Entities
At June 30, 2017, the Company has equity interests in unconsolidated VIEs. The Company has determined that it does not have the power to direct the activities of the VIEs that most significantly impact the VIEs' economic performance and is not the primary beneficiary of these VIEs in accordance with ASC 810. The Company's interests in the VIEs are, therefore, accounted for under the equity method of accounting.
The Company holds a 51% equity interest, and HCP owns a 49% interest, in a venture that owns and operates entry fee CCRCs (the "CCRC Venture"). The CCRC Venture's opco has been identified as a VIE. The equity members of the CCRC Venture's opco share certain operating rights, and the Company acts as manager to the CCRC Venture opco. However, the Company does not consolidate this VIE because it does not have the ability to control the activities that most significantly impact this VIE's economic performance. The assets of the CCRC Venture opco primarily consist of the CCRCs that it owns and leases, resident fees receivable,
notes receivable and cash and cash equivalents. The obligations of the CCRC Venture opco primarily consist of community lease obligations, mortgage debt, accounts payable, accrued expenses and refundable entrance fees.
The Company holds an equity ownership interest in each of the propco and opco of three ventures ("RIDEA Ventures") that operate senior housing communities in a RIDEA structure. As of June 30, 2017, the Company's equity ownership interest is 10% for each of the RIDEA Ventures. The RIDEA Ventures have been identified as VIEs. The equity members of the RIDEA Ventures share certain operating rights, and the Company acts as manager to the opcos of the RIDEA Ventures. However, the Company does not consolidate these VIEs because it does not have the ability to control the activities that most significantly impact the economic performance of these VIEs. The assets of the RIDEA Ventures primarily consist of the senior housing communities that the RIDEA Ventures own, resident fees receivable, and cash and cash equivalents. The obligations of the RIDEA Ventures primarily consist of notes payable, accounts payable and accrued expenses.
The Company holds a 15% equity ownership interest in the Blackstone Venture. The Blackstone Venture has been identified as a VIE due to the Company lacking substantive participation rights in the management of the venture and the Company lacking kick-out rights over the managing member. The equity members of the Blackstone Venture share certain operating rights and the Company acts as manager to 60 communities owned by the Blackstone Venture. However, the Company does not consolidate this VIE because it does not have the ability to control the activities that most significantly impact the economic performance of the VIE. The assets of the Blackstone Venture primarily consist of senior housing communities, resident fees receivable and cash and cash equivalents. The obligations of the Blackstone Venture primarily consist of long-term mortgage debt, accounts payable and accrued expenses. In addition to $636.2 million of long-term mortgage debt, the Blackstone Venture initially obtained $66.8 million of mortgage debt that was payable in 2017. In the event that refinancing proceeds for the $66.8 million of mortgage debt were insufficient to repay the debt principal amount, the Company may have been required to lend the amount of the shortfall, up to $12.0 million, to the Blackstone Venture. In June 2017, the Blackstone Venture completed the refinancing of the $66.8 million mortgage debt payable in 2017 and the Company was not required to lend any amounts to the Blackstone Venture. As of June 30, 2017, the Company leases two communities from the Blackstone Venture with annual lease payments of approximately $2.5 million. Under the terms of the lease agreements, the Company may be required to purchase the two leased communities for an amount equal to the greater of the fair market value of the communities or $33.8 million if there is an event of default under the lease agreement. See Note 4 for more information about the Company's entry into the Blackstone Venture.
The carrying value and classification of the related assets, liabilities and maximum exposure to loss as a result of the Company's involvement with these VIEs are summarized below at June 30, 2017 (in millions):
|
| | | | | | | | |
VIE Type | Asset Type | Maximum Exposure to Loss | | Carrying Amount |
CCRC Venture opco | Investment in unconsolidated ventures | $ | 50.7 |
| | $ | 50.7 |
|
RIDEA Ventures | Investment in unconsolidated ventures | $ | 76.6 |
| | $ | 76.6 |
|
Blackstone Venture | Investment in unconsolidated ventures | $ | 44.6 |
| | $ | 44.6 |
|
As of June 30, 2017, the Company is not required to provide financial support, through a liquidity arrangement or otherwise, to its unconsolidated VIEs.
14. Segment Information
As of June 30, 2017, the Company has five reportable segments: Retirement Centers; Assisted Living; CCRCs-Rental; Brookdale Ancillary Services; and Management Services. Operating segments are defined as components of an enterprise that engage in business activities from which it may earn revenues and incur expenses; for which separate financial information is available; and whose operating results are regularly reviewed by the chief operating decision maker to assess the performance of the individual segment and make decisions about resources to be allocated to the segment.
During the three months ended March 31, 2017, one community moved from the CCRCs-Rental segment to the Retirement Centers segment to more accurately reflect the underlying product offering of the community in the current period given changes to the community. The movement did not change the Company's reportable segments, but it did impact the revenues, expenses and assets reported within the two segments. Revenue and expenses for the three and six months ended June 30, 2016 and total assets for the period ended December 31, 2016 have not been recast.
Retirement Centers. The Company's Retirement Centers segment includes owned or leased communities that are primarily designed for middle to upper income seniors generally age 75 and older who desire an upscale residential environment providing the highest quality of service. The majority of the Company's retirement center communities consist of both independent living and assisted living units in a single community, which allows residents to "age-in-place" by providing them with a continuum of senior independent and assisted living services.
Assisted Living. The Company's Assisted Living segment includes owned or leased communities that offer housing and 24-hour assistance with activities of daily life to mid-acuity frail and elderly residents. Assisted living communities include both freestanding, multi-story communities and freestanding single story communities. The Company also operates memory care communities, which are freestanding assisted living communities specially designed for residents with Alzheimer's disease and other dementias.
CCRCs-Rental. The Company's CCRCs-Rental segment includes large owned or leased communities that offer a variety of living arrangements and services to accommodate all levels of physical ability and health. Most of the Company's CCRCs have independent living, assisted living and skilled nursing available on one campus or within the immediate market, and some also include memory care and Alzheimer's units.
Brookdale Ancillary Services. The Company's Brookdale Ancillary Services segment includes outpatient therapy, home health and hospice services, as well as education and wellness programs, provided to residents of many of the Company's communities and to seniors living outside of the Company's communities. The Brookdale Ancillary Services segment does not include the inpatient therapy services provided in the Company's skilled nursing units, which are included in the Company's CCRCs-Rental segment.
Management Services. The Company's Management Services segment includes communities operated by the Company pursuant to management agreements. In some of the cases, the controlling financial interest in the community is held by third parties and, in other cases, the community is owned in a venture structure in which the Company has an ownership interest. Under the management agreements for these communities, the Company receives management fees as well as reimbursed expenses, which represent the reimbursement of expenses it incurs on behalf of the owners.
The accounting policies of the Company's reportable segments are the same as those described in the summary of significant accounting policies in Note 2.
The following table sets forth selected segment financial and operating data (in thousands):
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Revenue | | | | | | | |
Retirement Centers (1) | $ | 162,248 |
| | $ | 169,990 |
| | $ | 334,868 |
| | $ | 339,416 |
|
Assisted Living (1) | 547,430 |
| | 613,017 |
| | 1,137,967 |
| | 1,230,287 |
|
CCRCs-Rental (1) | 114,202 |
| | 148,225 |
| | 256,000 |
| | 300,485 |
|
Brookdale Ancillary Services (1) | 110,190 |
| | 123,336 |
| | 222,162 |
| | 245,528 |
|
Management Services (2) | 252,402 |
| | 204,262 |
| | 452,241 |
| | 406,270 |
|
| $ | 1,186,472 |
| | $ | 1,258,830 |
| | $ | 2,403,238 |
| | $ | 2,521,986 |
|
Segment Operating Income (3) | |
| | |
| | |
| | |
|
Retirement Centers | $ | 67,297 |
| | $ | 74,754 |
| | $ | 141,299 |
| | $ | 149,203 |
|
Assisted Living | 186,921 |
| | 234,085 |
| | 404,360 |
| | 454,895 |
|
CCRCs-Rental | 24,344 |
| | 33,594 |
| | 59,659 |
| | 69,063 |
|
Brookdale Ancillary Services | 13,103 |
| | 19,032 |
| | 28,732 |
| | 33,550 |
|
Management Services | 22,442 |
| | 18,186 |
| | 38,336 |
| | 34,966 |
|
| 314,107 |
| | 379,651 |
| | 672,386 |
| | 741,677 |
|
General and administrative (including non-cash stock-based compensation expense) | 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 |
| | — |
|
Income from operations | $ | 30,174 |
| | $ | 58,287 |
| | $ | 78,300 |
| | $ | 99,641 |
|
|
| | | | | | | |
| As of |
| June 30, 2017 | | December 31, 2016 |
Total assets | | | |
Retirement Centers | $ | 1,286,639 |
| | $ | 1,452,546 |
|
Assisted Living | 5,210,068 |
| | 5,831,434 |
|
CCRCs-Rental | 721,810 |
| | 935,389 |
|
Brookdale Ancillary Services | 279,415 |
| | 280,530 |
|
Corporate and Management Services | 694,860 |
| | 717,788 |
|
Total assets | $ | 8,192,792 |
| | $ | 9,217,687 |
|
| |
(1) | All revenue is earned from external third parties in the United States. |
| |
(2) | Management services segment revenue includes reimbursements for which the Company is the primary obligor of costs incurred on behalf of managed communities. |
| |
(3) | Segment operating income is defined as segment revenues less segment facility operating expenses (excluding depreciation and amortization). |
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Certain statements in this Quarterly Report on Form 10-Q 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 in this Quarterly Report on Form 10-Q); 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 those set forth under "Item 1A. Risk Factors" contained in our Annual Report on Form 10-K for the year ended December 31, 2016 and Part II, "Item 1A. Risk Factors" and elsewhere in this Quarterly Report 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 Quarterly Report on Form 10-Q. 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 in this Quarterly Report on Form 10-Q to reflect any change in our expectations with regard thereto or change in events, conditions or circumstances on which any statement is based.
Executive Overview
As of June 30, 2017, we are the largest operator of senior living communities in the United States based on total capacity, with 1,039 communities in 46 states and the ability to serve approximately 102,000 residents. We offer our residents access to a full continuum of services across the most attractive sectors of the senior living industry. We operate independent living, assisted living and dementia-care communities and continuing care retirement centers ("CCRCs"). Through our ancillary services programs, we also offer a range of outpatient therapy, home health and hospice services to residents of many of our communities and to seniors living outside of our communities.
We intend to be the leading provider of senior living solutions, and we believe that we are positioned to take advantage of favorable demographic trends over time. We also believe that we operate in the most attractive sectors of the senior living industry with opportunities to increase our revenues through providing a combination of housing, hospitality services, ancillary services and health care services. Our senior living communities offer residents a supportive home-like setting, assistance with activities of daily living (such as eating, bathing, dressing, toileting and transferring/walking) and, in certain communities, licensed skilled nursing services. We also provide ancillary services, including outpatient therapy, home health services and hospice services, to our residents. By providing residents with a range of service options as their needs change, we provide greater continuity of care, enabling seniors to "age-in-place" and thereby maintain residency with us for a longer period of time. The ability of residents to age-in-place is also beneficial to our residents and their families who are concerned with care decisions for their elderly relatives.
Our strategy is to achieve consistent operational excellence in our core businesses. Execution on our strategy is intended to maximize the value of our existing platform and to build the foundation for further growth. We have identified five key priorities for which we have developed initiatives and are developing initiatives to support our strategy and have created a transformation process to develop cross-functional initiatives directly tied to key priorities. These five priorities include enhancing our customer and associate experience, improving our marketing and sales processes, simplifying our organization, optimizing our portfolio and leveraging our scale, and innovating for growth. While our focus will be on executing on this strategy, we plan to continue to evaluate and, where opportunities arise, selectively purchase existing operating companies, senior living communities, including those that we currently lease or manage, and ancillary services companies. Such acquisitions may be pursued on our own, or through our investments in ventures. We believe that successful execution upon our strategy and the initiatives supporting our strategy will enable us to grow stockholder value and better fulfill our mission by satisfying more customers, building improved relationships between us, our associates and our customers, and by improving our occupancy, revenue, expenses, and liquidity, by increasing the quality and durability of our cash flow, and by reducing our debt and lease leverage.
Portfolio Optimization Update
We continue to actively explore opportunities to optimize our portfolio through disposing of owned and leased communities, restructuring leases and investing in our Program Max initiative. We began 2017 with several pending transactions as part of this initiative, and each transaction is summarized below. As of June 30, 2017, we owned 360 communities (32,914 units), leased 469 communities (37,498 units) and provided management services with respect to 210 communities (31,898 units) for third parties or unconsolidated ventures in which we have an ownership interest.
We completed dispositions, through sales and lease terminations, of 130 communities during the period from January 1, 2016 through June 30, 2017. Our condensed consolidated financial statements include resident fee revenue of $6.3 million and $116.2 million, facility operating expenses of $7.5 million and $88.5 million, and cash lease payments of $0.6 million and $26.4 million for the 130 communities for the three months ended June 30, 2017 and June 30, 2016, respectively. Our condensed consolidated financial statements include resident fee revenue of $82.3 million and $236.1 million, facility operating expenses of $62.9 million and $177.0 million, and cash lease payments of $23.7 million and $52.4 million for the 130 communities for the six months ended June 30, 2017 and June 30, 2016, respectively.
Formation of Venture with Blackstone
On March 29, 2017, we and affiliates of Blackstone Real Estate Advisors VIII L.P. (collectively, "Blackstone") formed a venture (the "Blackstone Venture") that acquired 64 senior housing communities for a purchase price of $1.1 billion. We had previously leased the 64 communities from HCP, Inc. ("HCP") under long-term lease agreements with a remaining average lease term of approximately 12 years. At the closing, the Blackstone Venture purchased the 64-community portfolio from HCP subject to the
existing leases, and we contributed our leasehold interests for 62 communities and a total of $179.2 million in cash to purchase a 15% equity interest in the Blackstone Venture, terminate leases, and fund our share of closing costs. As of the formation date, we continued to operate two of the communities under lease agreements and began managing 60 of the communities on behalf of the venture under a management agreement with the venture. The two remaining leases will be terminated, pending certain regulatory and other conditions, at which point we will manage the communities; however, there can be no assurance that the terminations will occur or, if they do, when the actual terminations will occur. Two of the communities are managed by a third party for the venture.
The results and financial position of the 62 communities for which leases were terminated were deconsolidated from our financial statements prospectively upon formation of the Blackstone Venture. The results of operations of the 62 communities for which leases were terminated were reported in the following segments within the condensed consolidated financial statements through the formation date: Assisted Living (47 communities; 3,322 units), Retirement Centers (eight communities; 1,072 units) and CCRCs-Rental (seven communities; 1,416 units). Our interest in the venture is accounted for under the equity method of accounting.
As a result of this transaction, our total payment obligations for capital and financing leases and operating leases due during the twelve months ending March 31, 2018 decreased by $75.4 million and $16.6 million, respectively. Additionally, our capital and financing lease obligations within the condensed consolidated balance sheet were reduced by $880.0 million on the closing date. See Note 4 and Note 10 to the condensed consolidated financial statements for more information about the formation of the Blackstone Venture.
Community Dispositions
We began 2017 with 16 of our owned communities (1,423 units) classified as held for sale as of December 31, 2016 and entered into an agreement to sell one community and to terminate the lease for one adjacent community during the three months ended March 31, 2017. During the six months ended June 30, 2017, we completed the sale of three communities and we terminated the leases for eight communities. The results of operations of these communities are reported in the Assisted Living (eight communities) and CCRCs - Rental (three communities) segments within the condensed consolidated financial statements through the respective disposition dates. As of June 30, 2017, 14 communities were classified as held for sale.
As of June 30, 2017, $91.0 million was recorded as assets held for sale and $60.5 million of mortgage debt was included in the current portion of long-term debt within the condensed consolidated balance sheet with respect to the 14 communities held for sale as of such date. This debt will either be repaid with the proceeds from the sales or be assumed by the prospective purchasers. The results of operations of the 14 communities are reported in the following segments within the condensed consolidated financial statements: Assisted Living (12 communities; 1,050 units) and CCRCs-Rental (two communities; 222 units). The 14 communities had resident fee revenue of $9.4 million and $9.7 million and facility operating expenses of $7.9 million and $8.1 million for the three months ended June 30, 2017 and June 30, 2016, respectively. The 14 communities had resident fee revenue of $18.9 million and $19.7 million and facility operating expenses of $15.6 million and $16.3 million for the six months ended June 30, 2017 and June 30, 2016, respectively.
The closings of the sales of the unsold communities classified as held for sale are subject to receipt of regulatory approvals and satisfaction of other customary closing conditions and are expected to occur during fiscal 2017; however, there can be no assurance that the transactions will close or, if they do, when the actual closings will occur.
Dispositions and Restructurings of Leased Communities
On November 1, 2016, we announced that we had entered into agreements to, among other things, terminate triple-net leases with respect to 97 communities, four of which were contributed to an existing unconsolidated venture in which we hold an equity interest and 64 of which were acquired by the Blackstone Venture. In addition to the formation of the Blackstone Venture described above, the transactions include the following components:
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• | We and HCP agreed to terminate triple-net leases with respect to 25 communities (2,031 units), which we expect to occur in stages through the end of fiscal 2017. The results of operations of the 25 communities are reported in the following segments within the consolidated financial statements: Assisted Living (23 communities; 1,759 units) and CCRCs-Rental (two communities; 272 units). The 25 communities had resident fee revenue of $18.6 million and $18.5 million, facility operating expenses of $15.0 million and $14.6 million, and cash lease payments of $2.8 million and $4.9 million for the three months ended June 30, 2017 and June 30, 2016, respectively. The 25 communities had resident fee revenue of $36.9 million and $36.5 million, facility operating expenses of $29.9 million and $29.4 million, and cash lease payments of $5.5 million and $9.8 million for the six months ended June 30, 2017 and June 30, 2016, respectively. |
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• | We and HCP agreed to terminate triple-net leases with respect to eight communities (867 units). HCP agreed to contribute immediately thereafter four of such communities, consisting of 527 units, to an existing unconsolidated venture with HCP in which we have a 10% equity interest. During the three months ended December 31, 2016, the triple-net leases with respect to seven communities (773 units) were terminated and HCP contributed four of the communities to the existing unconsolidated venture. The triple-net lease with respect to the remaining community was terminated during January 2017. The results of operations of the eight communities are reported in the following segments within the condensed consolidated financial statements through the respective disposition dates: Assisted Living (six communities; 514 units), Retirement Centers (one community; 109 units) and CCRCs-Rental (one community; 244 units). |
Program Max Initiative
During the six months ended June 30, 2017, we also made progress on our Program Max initiative under which we expand, renovate, redevelop and reposition certain of our existing communities where economically advantageous. For the six months ended June 30, 2017, we invested $3.9 million on Program Max projects, net of $4.7 million of third party lessor reimbursements. We currently have 10 Program Max projects that have been approved, most of which have begun construction and are expected to generate 23 new units.
Competitive Developments
In the third quarter of fiscal 2016, we began experiencing an elevated rate of new openings, with significant new competition opening in several of our markets. We continue to address such competition through more sophisticated pricing tools and pricing initiatives based on the competitive market, current in-place rents and occupancy; focusing on operations, including ensuring high customer satisfaction, protecting key leadership positions and actively engaging district and regional management in community operations; additional marketing efforts, including leveraging our industry leading name through enhanced digital, direct mail and local community outreach; and community segmentation through which we evaluate current community position relative to competition and reposition if necessary (e.g., price, services, amenities and programming). We expect the elevated rate of new openings to continue through most of fiscal 2017 with pressures on our occupancy and rate growth expected to begin to abate in 2018.
Summary of Operating Results
The tables below present a summary of our operating results and certain other financial metrics for the three and six months ended June 30, 2017 and 2016 and the amount and percentage of increase or decrease of each applicable item (dollars in millions).
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| Three Months Ended June 30, | | Increase (Decrease) |
| 2017 | | 2016 | | Amount | | Percent |
Total revenues | $ | 1,186.5 |
| | $ | 1,258.8 |
| | $ | (72.4 | ) | | (5.7 | )% |
Facility operating expense | $ | 642.4 |
| | $ | 693.1 |
| | $ | (50.7 | ) | | (7.3 | )% |
Net income (loss) | $ | (46.3 | ) | | $ | (35.5 | ) | | $ | 10.8 |
| | 30.6 | % |
Net income (loss) attributable to Brookdale Senior Living Inc. common stockholders | $ | (46.3 | ) | | $ | (35.5 | ) | | $ | 10.8 |
| | 30.6 | % |
Adjusted EBITDA(1) | $ | 160.3 |
| | $ | 201.5 |
| | $ | (41.2 | ) | | (20.4 | )% |
Net cash provided by operating activities | $ | 133.1 |
| | $ | 107.5 |
| | $ | 25.6 |
| | 23.8 | % |
Adjusted Free Cash Flow(1) | $ | 40.0 |
| | $ | 44.9 |
| | $ | (4.9 | ) | | (11.0 | )% |
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| Six Months Ended June 30, | | Increase (Decrease) |
| 2017 | | 2016 | | Amount | | Percent |
Total revenues | $ | 2,403.2 |
| | $ | 2,522.0 |
| | $ | (118.7 | ) | | (4.7 | )% |
Facility operating expense | $ | 1,316.9 |
| | $ | 1,409.0 |
| | $ | (92.1 | ) | | (6.5 | )% |
Net income (loss) | $ | (172.7 | ) | | $ | (84.3 | ) | | $ | 88.4 |
| | 104.8 | % |
Net income (loss) attributable to Brookdale Senior Living Inc. common stockholders | $ | (172.6 | ) | | $ | (84.2 | ) | | $ | 88.4 |
| | 104.9 | % |
Adjusted EBITDA(1) | $ | 358.6 |
| | $ | 384.2 |
| | $ | (25.6 | ) | | (6.7 | )% |
Net cash provided by operating activities | $ | 199.9 |
| | $ | 177.8 |
| | $ | 22.0 |
| | 12.4 | % |
Adjusted Free Cash Flow(1) | $ | 103.4 |
| | $ | 72.8 |
| | $ | 30.6 |
| | 42.1 | % |
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(1) | Adjusted EBITDA and Adjusted Free Cash Flow are non-GAAP financial measures we use to assess our operating performance and liquidity. 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 included in this Quarterly Report on Form 10-Q have been recast to conform to the new definition. See "Non-GAAP Financial Measures" below for important information regarding both measures, including a description of the changes to the definition of Adjusted EBITDA. |
During the six months ended June 30, 2017, total revenues were $2.4 billion, a decrease of $118.7 million, or 4.7%, over our total revenues for the six months ended June 30, 2016. Resident fees for the six months ended June 30, 2017 decreased $164.7 million, or 7.8%, from the six months ended June 30, 2016. Management fees increased $3.4 million, or 9.6%, from the six months ended June 30, 2016, and reimbursed costs incurred on behalf of managed communities increased $42.6 million, or 11.5%. The decrease in resident fees during the six months ended June 30, 2017 was primarily due to disposition activity, through sales and lease terminations, since the beginning of the prior year period. Weighted average occupancy at the 812 communities we owned or leased during both full six-month periods decreased 130 basis points. The decrease in resident fees at the 812 communities we owned or leased during both full six-month periods was partially offset by a 2.0% increase in senior housing average monthly revenue per occupied unit (RevPOR) compared to the prior year six-month period.
During the six months ended June 30, 2017, facility operating expenses were $1.3 billion, a decrease of $92.1 million, or 6.5%, compared to the six months ended June 30, 2016. The decrease in facility operating expenses was primarily due to the impact of disposition activity, through sales and lease terminations, since the beginning of the prior year period. Facility operating expenses increased $28.2 million, or 2.9%, at the 812 communities we owned or leased during both full six-month periods.
Net income (loss) attributable to Brookdale Senior Living Inc. common stockholders for the six months ended June 30, 2017 was $(172.6) million, compared to net income (loss) attributable to Brookdale Senior Living Inc. common stockholders of $(84.2) million for the six months ended June 30, 2016. Net income (loss) for the six months ended June 30, 2017 was $(172.7) million, an increase of 104.8% compared to net income (loss) of ($84.3) million for the six months ended June 30, 2016. During the six months ended June 30, 2017, our Adjusted EBITDA was $358.6 million, a decrease of 6.7% compared to the six months ended June 30, 2016. Adjusted EBITDA includes transaction and strategic project costs of $11.6 million for the six months ended June 30, 2017 and integration, transaction, transaction-related and strategic project costs of $37.1 million for the six months ended June 30, 2016.
During the six months ended June 30, 2017, net cash provided by operating activities was $199.9 million, an increase of $22.0 million, or 12.4%, over our net cash provided by operating activities for the six months ended June 30, 2016. During the six months ended June 30, 2017, our Adjusted Free Cash Flow was $103.4 million, an increase of 42.1% when compared to the six months ended June 30, 2016. Adjusted free cash flow for the six months ended June 30, 2016 included $38.3 million of integration, transaction, transaction-related and strategic project costs.
Consolidated Results of Operations
Comparison of Three Months Ended June 30, 2017 to June 30, 2016
The following table sets forth, for the periods indicated, statement of operations items and the amount and percentage of change of these items. The results of operations for any particular period are not necessarily indicative of results for any future period. The following data should be read in conjunction with our condensed consolidated financial statements and the related notes, which are included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
During the three months ended March 31, 2017, one community moved from the CCRCs-Rental segment to the Retirement Centers segment to more accurately reflect the underlying product offering of the community in the current period given changes to the community. The movement did not change our reportable segments, but it did impact the revenues, expenses and operating data reported within the two segments. Revenue, expenses and operating data for the three months ended June 30, 2016 have not been recast.
As of June 30, 2017 our total operations included 1,039 communities with a capacity to serve 102,310 residents.
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(dollars in thousands, except Total RevPAR, RevPAR and RevPOR) | Three Months Ended June 30, | | | | |
| 2017 | | 2016 | | Increase (Decrease) | | % Increase (Decrease) |
Statement of Operations Data: | | | | | | | |
Revenue | | | | | | | |
Resident fees | | | | | | | |
Retirement Centers | $ | 162,248 |
| | $ | 169,990 |
| | $ | (7,742 | ) | | (4.6 | )% |
Assisted Living | 547,430 |
| | 613,017 |
| | (65,587 | ) | | (10.7 | )% |
CCRCs-Rental | 114,202 |
| | 148,225 |
| | (34,023 | ) | | (23.0 | )% |
Brookdale Ancillary Services | 110,190 |
| | 123,336 |
| | (13,146 | ) | | (10.7 | )% |
Total resident fees | 934,070 |
| | 1,054,568 |
| | (120,498 | ) | | (11.4 | )% |
Management services (1) | 252,402 |
| | 204,262 |
| | 48,140 |
| | 23.6 | % |
Total revenue | 1,186,472 |
| | 1,258,830 |
| | (72,358 | ) | | (5.7 | )% |
Expense | |
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Facility operating expense | |
| | |
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Retirement Centers | 94,951 |
| | 95,236 |
| | (285 | ) | | (0.3 | )% |
Assisted Living | 360,509 |
| | 378,932 |
| | (18,423 | ) | | (4.9 | )% |
CCRCs-Rental | 89,858 |
| | 114,631 |
| | (24,773 | ) | | (21.6 | )% |
Brookdale Ancillary Services | 97,087 |
| | 104,304 |
| | (7,217 | ) | | (6.9 | )% |
Total facility operating expense | 642,405 |
| | 693,103 |
| | (50,698 | ) | | (7.3 | )% |
General and administrative expense | 67,090 |
| | 90,695 |
| | (23,605 | ) | | (26.0 | )% |
Transaction costs | 3,339 |
| | 441 |
| | 2,898 |
| | 657.1 | % |
Facility lease expense | 84,690 |
| | 92,682 |
| | (7,992 | ) | | (8.6 | )% |
Depreciation and amortization | 120,887 |
| | 133,394 |
| | (12,507 | ) | | (9.4 | )% |
Asset impairment | 1,559 |
| | 4,152 |
| | (2,593 | ) | | (62.5 | )% |
Loss of facility lease termination | 6,368 |
| | — |
| | 6,368 |
| | NM |
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Costs incurred on behalf of managed communities | 229,960 |
| | 186,076 |
| | 43,884 |
| | 23.6 | % |
Total operating expense | 1,156,298 |
| | 1,200,543 |
| | (44,245 | ) | | (3.7 | )% |
Income from operations | 30,174 |
| | 58,287 |
| | (28,113 | ) | | (48.2 | )% |
Interest income | 804 |
| | 728 |
| | 76 |
| | 10.4 | % |
Interest expense | (76,476 | ) | | (96,604 | ) | | (20,128 | ) | | (20.8 | )% |
Debt modification and extinguishment costs | (693 | ) | | (186 | ) | | 507 |
| | 272.6 | % |
Equity in (loss) earnings of unconsolidated ventures | (4,570 | ) | | 338 |
| | (4,908 | ) | | NM |
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(Loss) gain on sale of assets, net | (547 | ) | | (198 | ) | | 349 |
| | 176.3 | % |
Other non-operating income | 2,236 |
| | 2,267 |
| | (31 | ) | | (1.4 | )% |
Income (loss) before income taxes | (49,072 | ) | | (35,368 | ) | | 13,704 |
| | 38.7 | % |
Benefit (provision) for income taxes | 2,735 |
| | (123 | ) | | 2,858 |
| | NM |
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Net income (loss) | (46,337 | ) | | (35,491 | ) | | 10,846 |
| | 30.6 | % |
Net (income) loss attributable to noncontrolling interest | 50 |
| | 41 |
| | 9 |
| | 22.0 | % |
Net income (loss) attributable to Brookdale Senior Living Inc. common stockholders | $ | (46,287 | ) | | $ | (35,450 | ) | | $ | 10,837 |
| | 30.6 | % |
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| Three Months Ended June 30, | | | | |
| 2017 | | 2016 | | Increase (Decrease) | | % Increase (Decrease) |
Selected Operating and Other Data: | | | | | | | |
Total number of communities (period end) | 1,039 |
| | 1,114 |
| | (75 | ) | | (6.7 | )% |
Total units operated (2) | | | |
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Period end | 101,717 |
| | 106,751 |
| | (5,034 | ) | | (4.7 | )% |
Weighted average | 102,194 |
| | 107,135 |
| | (4,941 | ) | | (4.6 | )% |
Owned/leased communities units (2) | | | |
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Period end | 70,263 |
| | 80,519 |
| | (10,256 | ) | | (12.7 | )% |
Weighted average | 70,833 |
| | 80,700 |
| | (9,867 | ) | | (12.2 | )% |
Total RevPAR (3) | $ | 4,392 |
| | $ | 4,352 |
| | $ | 40 |
| | 0.9 | % |
RevPAR (4) | $ | 3,873 |
| | $ | 3,842 |
| | $ | 31 |
| | 0.8 | % |
Owned/leased communities occupancy rate (weighted average) | 84.6 | % | | 85.8 | % | | (1.2 | )% | | (1.4 | )% |
RevPOR (5) | $ | 4,580 |
| | $ | 4,476 |
| | $ | 104 |
| | 2.3 | % |
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Selected Segment Operating and Other Data: | |
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Retirement Centers | | | |
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Number of communities (period end) | 86 |
| | 95 |
| | (9 | ) | | (9.5 | )% |
Total units (2) | | | |
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Period end | 16,071 |
| | 17,095 |
| | (1,024 | ) | | (6.0 | )% |
Weighted average | 16,071 |
| | 17,095 |
| | (1,024 | ) | | (6.0 | )% |
RevPAR (4) | $ | 3,365 |
| | $ | 3,315 |
| | $ | 50 |
| | 1.5 | % |
Occupancy rate (weighted average) | 87.3 | % | | 88.9 | % | | (1.6 | )% | | (1.8 | )% |
RevPOR (5) | $ | 3,857 |
| | $ | 3,727 |
| | $ | 130 |
| | 3.5 | % |
Assisted Living | |
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Number of communities (period end) | 713 |
| | 818 |
| | (105 | ) | | (12.8 | )% |
Total units (2) | | | |
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Period end | 46,999 |
| | 53,459 |
| | (6,460 | ) | | (12.1 | )% |
Weighted average | 47,246 |
| | 53,521 |
| | (6,275 | ) | | (11.7 | )% |
RevPAR (4) | $ | 3,862 |
| | $ | 3,818 |
| | $ | 44 |
| | 1.2 | % |
Occupancy rate (weighted average) | 83.9 | % | | 85.3 | % | | (1.4 | )% | | (1.6 | )% |
RevPOR (5) | $ | 4,602 |
| | $ | 4,478 |
| | $ | 124 | < |