Brookdale Announces Second Quarter 2023 Results

NASHVILLE, Tenn., Aug. 7, 2023 /PRNewswire/ -- Brookdale Senior Living Inc. (NYSE: BKD) ("Brookdale" or the "Company") announced results for the quarter ended June 30, 2023.

HIGHLIGHTS

• RevPAR of $4,544 exceeded pre-pandemic levels for the second consecutive quarter driven by 190 basis points of occupancy growth and an 8.8% increase in RevPOR over the prior year quarter.
• Through consistent execution of strategic priorities and commitment to growth, net income (loss) improved 95% year-over-year while Adjusted EBITDA grew 61% despite the impact of recent changes in lease classification.
• Net cash provided by operating activities and Adjusted Free Cash Flow improved meaningfully versus the prior year quarter.

"I am pleased to have made such strong progress this year for our residents, associates, and shareholders. We continued to build upon our positive momentum in the second quarter and once again achieved remarkable year-over-year Adjusted EBITDA growth. In the first half of 2023, we nearly doubled Adjusted EBITDA over the 2022 period. Through focused execution against our strategic priorities and ongoing improvements in operational excellence, we have grown revenue, increased margin, and strengthened our financial position," said Lucinda ("Cindy") Baier, Brookdale's President and CEO. "Whether it's this year's record RevPAR or our progress towards positive Adjusted Free Cash Flow, I believe Brookdale is laying the groundwork for an incredibly promising future that will benefit our residents, associates, and shareholders for years to come."

SUMMARY OF SECOND QUARTER FINANCIAL RESULTS

Consolidated summary of operating results and metrics:

Same community⁽²⁾ summary of operating results and metrics:

Recent consolidated occupancy trend:

OVERVIEW OF SECOND QUARTER RESULTS

• Resident fee revenue.
  • 2Q 2023 vs 2Q 2022:
    • Resident fees increased primarily due to the increases in RevPOR and occupancy.
    • The increase in RevPOR was primarily the result of in-place rate increases.
    • The increase in occupancy primarily reflects the impact of the Company's execution on key initiatives to rebuild occupancy lost due to the COVID-19 pandemic.
  • 2Q 2023 vs 1Q 2023: Resident fees decreased primarily due to the disposition of the Company's one remaining entrance fee community during the second quarter of 2023.
• Facility operating expense.
  • 2Q 2023 vs 2Q 2022: The increase was primarily due to broad inflationary pressure, increased incentive compensation costs, and increased referral source costs, partially offset by a decrease in the use of premium labor, primarily contract labor.
  • 2Q 2023 vs 1Q 2023: The increase in facility operating expense was primarily due to annual wage rate adjustments made in March and an additional day of expense during the second quarter of 2023. These increases were partially offset by seasonally lower utilities expense, decreased estimates of group health expense, and the disposition of the entrance fee community during the second quarter of 2023.
• Cash facility operating lease payments. The increases were primarily attributable to a change in the classification of lease payments as a result of lease amendments subsequent to the prior periods.
  
• Net income (loss).
  • 2Q 2023 vs 2Q 2022: The decrease in net loss was primarily attributable to the increase in resident fee revenue and a $36.3 million gain on sale of communities, net recognized during the second quarter of 2023 for the sale of the Company's one remaining entrance fee community. These changes were partially offset by increases in facility operating expense and debt interest expense compared to the prior year period.
  • 2Q 2023 vs 1Q 2023: The decrease in net loss was primarily attributable to the $36.3 million gain on sale of communities, net recognized during the second quarter of 2023.
• Adjusted EBITDA.
  • 2Q 2023 vs 2Q 2022: The increase in Adjusted EBITDA was primarily attributable to the increase in resident fee revenue, partially offset by the increase in facility operating expense and the change in classification of $10.4 million of lease payments for 51 communities as cash facility operating lease payments as a result of lease amendments subsequent to the prior year period.
  • 2Q 2023 vs 1Q 2023: The decrease in Adjusted EBITDA was primarily attributable to the change in classification of $4.8 million of lease payments for 35 communities as cash facility operating lease payments as a result of lease amendments during the second quarter of 2023 and the impact of the resident fee revenue and facility operating expense factors previously discussed.

LIQUIDITY

• Net cash provided by (used in) operating activities.
  • 2Q 2023 vs 2Q 2022: The increase in net cash provided by operating activities was primarily attributable to an increase in resident fee revenue compared to the prior year period, partially offset by an increase in facility operating expense and an increase in debt interest expense compared to the prior year period.
  • 2Q 2023 vs 1Q 2023: The increase in net cash provided by operating activities was primarily attributable to decreases in insurance premium payments and incentive compensation payments due to the timing of annual payments.
• Non-development capital expenditures, net. The increase in non-development capital expenditures, net of lessor reimbursements, compared to the second quarter of 2022 was primarily attributable to an increase in remediation costs at the Company's communities resulting from natural disasters primarily from the impact of Winter Storm Elliott and a decrease in reimbursements from lessors.
  
• Adjusted Free Cash Flow.
  • 2Q 2023 vs 2Q 2022: The $41.0 million change in Adjusted Free Cash Flow was primarily attributable to the increase in net cash provided by operating activities, partially offset by the increase in non-development capital expenditures, net.
  • 2Q 2023 vs 1Q 2023: The $13.7 million change in Adjusted Free Cash Flow was primarily attributable to the increase in net cash provided by operating activities, excluding $25.6 million of changes in prepaid insurance premiums financed with notes payable.
• Total liquidity. Total liquidity of $440.2 million as of June 30, 2023 included $336.6 million of unrestricted cash and cash equivalents, $96.2 million of marketable securities, and $7.4 million of availability on the Company's secured credit facility. Total liquidity as of June 30, 2023 increased $1.5 million from March 31, 2023, primarily attributable to net cash proceeds from the sale of the Company's one remaining entrance fee community, partially offset by debt repayments.

TRANSACTION AND FINANCING UPDATE

The Company completed the sale of its one remaining entrance fee community on May 1, 2023. The Company received cash proceeds of $12.5 million, net of $29.6 million in mortgage debt repaid and transaction costs.

During the three months ended June 30, 2023, the Company and Welltower Inc. ("Welltower") entered into amendments to the Company's existing lease arrangements pursuant to which the Company continues to lease 74 communities. In connection with the amendments, the Company extended the maturity of one lease involving 39 communities from December 31, 2026 until June 30, 2032. The amendments did not change the amount of required lease payments over the previous term of the leases or the annual lease escalators. In addition, Welltower agreed to make available a pool in the aggregate amount of up to $17.0 million to fund costs associated with certain capital expenditure projects.

The amended leases for 35 of such communities were prospectively classified as operating leases subsequent to the amendment. The prospective change in classification of such lease costs to operating lease expense will result in a $19.3 million increase in cash lease payments for operating leases for 2023 and an offsetting decrease in cash lease payments for financing leases. For the three months ended June 30, 2023, the classification of such lease costs as operating lease expense resulted in a $4.8 million increase in cash lease payments for operating leases and an offsetting decrease in cash lease payments for financing leases.

The amendments replaced the net worth covenant provisions requiring the Company to maintain at least $400.0 million of stockholders' equity with a consolidated tangible net worth covenant requiring the Company to maintain at least $2.0 billion of tangible net worth, generally calculated as stockholders' equity plus accumulated depreciation and amortization less intangible assets and further adjusted for certain other items. So long as it maintains tangible net worth as defined in the leases of at least $1.5 billion, the Company will also be able to cure any breach by posting collateral with Welltower.

In August 2023, the Company entered into a new lease agreement with a favorable purchase option under which the Company will continue to lease 10 communities from affiliates of LTC Properties, Inc. The lease will expire on December 31, 2029, subject to earlier termination if the Company exercises the purchase option. The landlord has also agreed to make available a pool to fund costs associated with certain capital expenditure projects.

2023 OUTLOOK

For the third quarter 2023, the Company is providing the following guidance:

The Company expects its third quarter 2023 cash facility operating lease payments to be approximately $65 million, including the full quarter impact of recent changes in lease classifications.

In the aggregate, the Company expects its full-year 2023 non-development capital expenditures, net of anticipated lessor reimbursements, to be approximately $200.0 million, excluding reimbursable remediation costs at the Company's communities resulting from 2022 natural disasters. The Company anticipates an additional approximately $25.0 million in reimbursable remediation costs at the Company's communities resulting from 2022 natural disasters, and such costs are expected to be reimbursed from the Company's property and casualty insurance policies in 2023 or 2024.

This guidance excludes future acquisition or disposition activity. Reconciliation of the non-GAAP financial measure included in the foregoing guidance to the most comparable GAAP financial measure is not available without unreasonable effort due to the inherent difficulty in forecasting the timing or amounts of items required to reconcile Adjusted EBITDA from the Company's net income (loss). Variability in the timing or amounts of items required to reconcile the measure may have a significant impact on the Company's future GAAP results.

SUPPLEMENTAL INFORMATION

The Company will post on its website at brookdaleinvestors.com supplemental information relating to the Company's second quarter results, an updated investor presentation, and a copy of this earnings release. The supplemental information and a copy of this earnings release will also be furnished in a Form 8-K to be filed with the SEC.

EARNINGS CONFERENCE CALL

Brookdale's management will conduct a conference call to discuss the financial results for the second quarter on August 8, 2023 at 9:00 AM ET. The conference call can be accessed by dialing (833) 470-1428 (from within the U.S.) or (929) 526-1599 (from outside of the U.S.) ten minutes prior to the scheduled start and referencing the access code "343604".

A webcast of the conference call will be available to the public on a listen-only basis at brookdaleinvestors.com. Please allow extra time before the call to download the necessary software required to listen to the internet broadcast. A replay of the webcast will be available through the website following the call.

For those who cannot listen to the live call, a replay of the webcast will be available until 11:59 PM ET on August 15, 2023 by dialing (866) 813-9403 (from within the U.S.) or +44 (204) 525-0658 (from outside of the U.S.) and referencing access code "508637".

ABOUT BROOKDALE SENIOR LIVING

Brookdale Senior Living Inc. is the nation's premier operator of senior living communities. The Company is committed to its mission of enriching the lives of the people it serves with compassion, respect, excellence, and integrity. The Company, through its affiliates, operates independent living, assisted living, memory care, and continuing care retirement communities. Through its comprehensive network, Brookdale helps to provide seniors with care and services in an environment that feels like home. The Company's expertise in healthcare, hospitality, and real estate provides residents with opportunities to improve wellness, pursue passions, and stay connected with friends and loved ones. Brookdale, through its affiliates, operates and manages 672 communities in 41 states as of June 30, 2023, with the ability to serve more than 60,000 residents. Brookdale's stock trades on the New York Stock Exchange under the ticker symbol BKD. For more information, visit brookdale.com or connect with Brookdale on Facebook or YouTube.

DEFINITIONS OF REVPAR AND REVPOR

RevPAR, or average monthly senior housing resident fee revenue per available unit, is defined by the Company as resident fee revenue for the corresponding portfolio for the period (excluding revenue for private duty services provided to seniors living outside of the Company's communities and entrance fee amortization), divided by the weighted average number of available units in the corresponding portfolio for the period, divided by the number of months in the period.

RevPOR, or average monthly senior housing resident fee revenue per occupied unit, is defined by the Company as resident fee revenue for the corresponding portfolio for the period (excluding revenue for private duty services provided to seniors living outside of the Company's communities and entrance fee amortization), divided by the weighted average number of occupied units in the corresponding portfolio for the period, divided by the number of months in the period.

SAFE HARBOR

Certain statements in this press release and the associated earnings call may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to various risks and uncertainties and include all statements that are not historical statements of fact and those regarding the Company's intent, belief or expectations. Forward-looking statements are generally identifiable by use of forward-looking terminology such as "may," "will," "should," "could," "would," "potential," "intend," "expect," "endeavor," "seek," "anticipate," "estimate," "believe," "project," "predict," "continue," "plan," "target," or other similar words or expressions, and include statements regarding the Company's expected financial and operational results. These forward-looking statements are based on certain assumptions and expectations, and the Company's ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Although the Company believes that expectations reflected in any forward-looking statements are based on reasonable assumptions, it can give no assurance that its assumptions or expectations will be attained and actual results and performance could differ materially from those projected. Factors which could have a material adverse effect on the Company's operations and future prospects or which could cause events or circumstances to differ from the forward-looking statements include, but are not limited to, the impacts of the COVID-19 pandemic, including on the nation's economy and debt and equity markets and the local economies in the Company's markets, and on the Company and the Company's business, results of operations, cash flow, revenue, expenses, liquidity, and its strategic initiatives, including plans for future growth, which will depend on many factors, some of which cannot be foreseen, including the pace and consistency of recovery from the pandemic and any resurgence or variants of the disease; the frequency and magnitude of legal actions and liability claims that may arise due to COVID-19 or the Company's response efforts; events which adversely affect the ability of seniors to afford resident fees, including downturns in the economy, housing market, consumer confidence, or the equity markets and unemployment among resident family members; changes in reimbursement rates, methods, or timing under governmental reimbursement programs including the Medicare and Medicaid programs; the effects of senior housing construction and development, lower industry occupancy, and increased competition; conditions of housing markets, regulatory changes, acts of nature, and the effects of climate change in geographic areas where the Company is concentrated; terminations of the Company's resident agreements and vacancies in the living spaces it leases; failure to maintain the security and functionality of the Company's information systems, to prevent a cybersecurity attack or breach, or to comply with applicable privacy and consumer protection laws, including HIPAA; the Company's ability to complete its capital expenditures in accordance with its plans; the Company's ability to identify and pursue development, investment, and acquisition opportunities and its ability to successfully integrate acquisitions; competition for the acquisition of assets; the Company's ability to complete pending or expected disposition, acquisition, or other transactions on agreed upon terms or at all, including in respect of the satisfaction of closing conditions, the risk that regulatory approvals are not obtained or are subject to unanticipated conditions, and uncertainties as to the timing of closing, and the Company's ability to identify and pursue any such opportunities in the future; risks related to the implementation of the Company's strategy, including initiatives undertaken to execute on the Company's strategic priorities and their effect on its results; limits on the Company's ability to use net operating loss carryovers to reduce future tax payments; delays in obtaining regulatory approvals; disruptions in the financial markets or decreases in the appraised values or performance of the Company's communities that affect the Company's ability to obtain financing or extend or refinance debt as it matures and the Company's financing costs; the Company's ability to generate sufficient cash flow to cover required interest, principal, and long-term lease payments and to fund its planned capital projects; the effect of any non-compliance with any of the Company's debt or lease agreements (including the financial or other covenants contained therein), including the risk of lenders or lessors declaring a cross default in the event of the Company's non-compliance with any such agreements and the risk of loss of the Company's property securing leases and indebtedness due to any resulting lease terminations and foreclosure actions; the effect of the Company's indebtedness and long-term leases on the Company's liquidity and its ability to operate its business; increases in market interest rates that increase the costs of the Company's debt obligations; the Company's ability to obtain additional capital on terms acceptable to it; departures of key officers and potential disruption caused by changes in management; increased competition for, or a shortage of, associates (including due to general labor market conditions), wage pressures resulting from increased competition, low unemployment levels, minimum wage increases and changes in overtime laws, and union activity; environmental contamination at any of the Company's communities; failure to comply with existing environmental laws; an adverse determination or resolution of complaints filed against the Company, including putative class action complaints; costs to respond to, and adverse determinations resulting from, government reviews, audits and investigations; the cost and difficulty of complying with increasing and evolving regulation; changes in, or its failure to comply with, employment-related laws and regulations; unanticipated costs to comply with legislative or regulatory developments; the risks associated with current global economic conditions and general economic factors such as inflation, the consumer price index, commodity costs, fuel and other energy costs, competition in the labor market, costs of salaries, wages, benefits, and insurance, interest rates, and tax rates; the impact of seasonal contagious illness or an outbreak of COVID-19 or other contagious disease in the markets in which the Company operates; actions of activist stockholders, including a proxy contest; as well as other risks detailed from time to time in the Company's filings with the Securities and Exchange Commission, including those set forth in the Company's Annual Report on Form 10-K and Quarterly Reports on Form 10-Q. When considering forward-looking statements, you should keep in mind the risk factors and other cautionary statements in such SEC filings. Readers are cautioned not to place undue reliance on any of these forward-looking statements, which reflect management's views as of the date of this press release and/or associated earnings call. The Company cannot guarantee future results, levels of activity, performance or achievements, and, except as required by law, it expressly disclaims any obligation to release publicly any updates or revisions to any forward-looking statements contained in this press release and/or associated earnings call to reflect any change in the Company's expectations with regard thereto or change in events, conditions, or circumstances on which any statement is based.