Brookdale Announces Record Second Quarter 2009 Results; CFFO of $0.50 Per Share

NASHVILLE, Tenn., Aug. 3 /PRNewswire-FirstCall/ -- Brookdale Senior Living Inc. (NYSE: BKD) (the "Company") today reported record financial and operating results for the second quarter of 2009.

Bill Sheriff, Brookdale's CEO, said, "We are very pleased to have produced a second consecutive record revenue and CFFO quarter. We are driving results by staying focused on our plan - innovate and execute in sales and marketing, proactively roll out supportive services into our communities and aggressively control our cost base. While uncertainty remains, the market environment seems to have stabilized a bit and our level occupancy reflected that stability. Our revenue per unit increased by over 5%, with a good contribution from our ancillary services programs. The sequential quarter decrease in operating expenses reflects our success at comprehensively examining and adjusting our costs without sacrificing our commitment to, or maintenance of, our quality standards. In today's economic environment, our performance speaks to the strength of our plan, our people and Brookdale's ongoing commitment to our customers."

Mark Ohlendorf, Co-President and CFO of Brookdale, commented, "In addition to our strong results in the quarter, we are very pleased with the improvements we made to our balance sheet. We successfully raised equity, paid off the outstanding cash borrowings on our corporate line of credit, reduced our leverage and reduced our capital costs. We have no mortgage debt maturing until 2011 - beyond normal principal amortization - that does not contain contractual extension options. We ended the quarter with improved liquidity with $96 million of unrestricted cash on the balance sheet and no cash borrowings on the line. This increased liquidity gives us more operational and strategic flexibility in either good or bad times."

Financial Results

Total revenue for the second quarter was a record $500.8 million, an increase of $22.6 million, or 4.7%, from the second quarter of 2008. The increase in revenue was primarily driven by an increase in average monthly revenue per unit, including growing revenues from ancillary services, partially offset by a small decline in occupancy. Average monthly revenue per unit was $3,990 in the second quarter, an increase of $199, or 5.2%, over the second quarter of 2008. Average occupancy for the second quarter was 88.5%, compared to 88.9% for the second quarter of 2008 and 88.7% for the first quarter of 2009. Ending occupancy for the second quarter increased to 88.8% versus 88.6% at the end of the first quarter of 2009.

Facility operating expenses for the second quarter were $316.6 million, an increase of $10.1 million, or 3.3%, from the second quarter of 2008, but a decrease of $1.5 million from the first quarter of 2009. The increase over the prior year's quarter was primarily driven by the growth of ancillary services and expenses associated with expansions. With the positive impact of the Company's cost control initiatives, facility operating expenses, excluding the impact of ancillary services, increased by 0.6% from the second quarter of 2008. Operating contribution margin for the total company during the second quarter was 36.6%, a 100 basis point improvement over the second quarter of 2008, and was the highest since the second quarter of 2007.

General and administrative expenses for the second quarter were $31.7 million, down from $40.3 million in the second quarter of 2008, which included a non-recurring $8.0 million litigation-related charge. The Company continues to have one of the most efficient platforms in the industry and, as a percentage of revenue (including revenues under management), general and administrative expenses (excluding non-cash compensation) were 4.6% in the second quarter of 2009.

Brookdale's management utilizes Adjusted EBITDA and Cash From Facility Operations ("CFFO") to evaluate the Company's performance and liquidity because these metrics exclude non-cash expenses such as depreciation and amortization, non-cash stock-based compensation expense and straight-line lease expense, net of deferred gain amortization. Brookdale also uses Facility Operating Income to assess the performance of its facilities. Second quarter 2008 Adjusted EBITDA and Cash From Facility Operations included a non-recurring $8.0 million litigation-related charge and integration costs of $2.4 million.

For the quarter ended June 30, 2009, Facility Operating Income was $177.6 million, an increase of $13.4 million from the second quarter of 2008, and Adjusted EBITDA was $92.1 million, a $12.5 million increase over the second quarter of 2008.

Cash From Facility Operations was $52.5 million for the second quarter of 2009, or $0.50 per share. This was an increase of $5.4 million, or $0.04 per share, over the second quarter of 2008, excluding the non-recurring and integration expenses in 2008. Including the non-recurring and integration costs, the Company reported CFFO of $0.36 per share in the second quarter of 2008. For the six months ended June 30, 2009, CFFO was $102.7 million, or $0.99 per share.

Net loss for the second quarter of 2009 was $(10.5) million, or $(0.10) per diluted common share. The loss for the quarter includes non-cash items for depreciation and amortization, non-cash stock-based compensation expense and straight-line lease expense, net of deferred gain amortization, which totaled $80.5 million.

Operating Activities

For the quarter ended June 30, 2009, same community revenues grew 4.8% over the same period in 2008 as revenue per unit increased by 5.3% and occupancy fell by 0.3%. Same community Facility Operating Income for the quarter increased by 9.2% when compared to the second quarter of 2008 as expenses grew by 2.4%.

For the twelve months ended June 30, 2009, same community revenues grew 4.1% over the corresponding period ending in 2008, and same community Facility Operating Income increased by 1.7% over the corresponding period ending in 2008. The twelve month same community data excludes $7.0 million of charges in the fourth quarter of 2007 relating to integration-related accounting items and named-tropical storm costs of $4.8 million in the last three quarters of 2008.

By the end of the second quarter, the Company's ancillary services programs provided therapy services to approximately 35,000 Brookdale units. At the end of the quarter, the Company's home health agencies were serving over 17,000 units across the total consolidated Brookdale portfolio, up from approximately 7,200 units served a year ago. The therapy and home health services produced $200 of monthly Facility Operating Income per occupied unit in the second quarter across all units served, up from $138 per month a year ago and $167 in the first quarter of 2009, driven primarily by maturation of existing clinics and the acquisition of home health agencies.

During the quarter, the Company opened one expansion with 26 units. There are currently four expansion projects under construction that will add a total of 615 units in 2009. Two of these projects are leased and two are owned with financing in place and no additional equity required.

Balance Sheet

During the current period the Company completed an equity offering which yielded approximately $163.9 million of net proceeds. The proceeds from the offering were used primarily to repay the $125.0 million of indebtedness which was outstanding under the existing credit facility.

Brookdale had $95.6 million of unrestricted cash and cash equivalents on its balance sheet at the end of the second quarter. Restricted cash grew to $170.6 million primarily as a result of the Company replacing some outstanding letters of credit with restricted cash to reduce the Company's letter of credit needs.

During the first half of 2009, Brookdale extended the maturity of all of its mortgage debt initially due in 2009. Therefore, the Company currently has no mortgage debt maturities before 2011 that do not contain contractual extension options other than periodic, scheduled principal payments.

Additional Filings

The Company will file on or about August 3, 2009 a Form 8-K with the SEC which includes supplemental information relating to the Company's second quarter 2009 results. This filing will also be available through the Investor Relations section of the Company's website upon filing - www.brookdaleliving.com.

Earnings Conference Call

Brookdale's management will conduct a conference call on Tuesday, August 4, 2009 to review the financial results of its second quarter ended June 30, 2009. The conference call is scheduled for 9:00 AM ET. All interested parties are welcome to participate in the live conference call. The conference call can be accessed by dialing (866) 845-7252 (from within the U.S.) or (706) 634-9069 (from outside of the U.S.) ten minutes prior to the scheduled start and referencing the "Brookdale Senior Living Second Quarter Earnings Call."

A webcast of the conference call will be available to the public on a listen-only basis at www.brookdaleliving.com. Please allow extra time prior to the call to visit the site and download the necessary software required to listen to the internet broadcast. A replay of the webcast will be available for three months following the call.

For those who cannot listen to the live call, a replay will be available until 11:59 PM ET on August 11, 2009 by dialing (800) 642-1687 (from within the U.S.) or (706) 645-9291 (from outside of the U.S.) and referencing access code "21888466." A copy of this earnings release is posted on the Investor Relations page of the Brookdale website (www.brookdaleliving.com).

About Brookdale Senior Living

Brookdale Senior Living Inc. is a leading owner and operator of senior living communities throughout the United States. The Company is committed to providing an exceptional living experience through properties that are designed, purpose-built and operated to provide the highest-quality service, care and living accommodations for residents. Currently the Company owns and operates independent living, assisted living, and dementia-care communities and continuing care retirement centers, with 546 communities in 35 states and the ability to serve approximately 52,000 residents.

Safe Harbor

Certain items in this press release and the associated earnings conference call may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Those forward-looking statements are subject to various risks and uncertainties and include all statements that are not historical statements of fact and those regarding our intent, belief or expectations, including, but not limited to, statements relating to our operational initiatives and our expectations regarding their effect on our results; our expectations regarding occupancy, revenue, expense levels, the demand for senior housing, acquisition opportunities and asset dispositions; our belief regarding our growth prospects; our ability to secure financing or repay, replace or extend existing debt at or prior to maturity; our ability to remain in compliance with all of our debt and lease agreements (including the financial covenants contained therein); our expectations regarding liquidity; our plans to deleverage; our expectations regarding financings and refinancings of assets; our plans to generate growth organically through occupancy improvements, increases in annual rental rates and the achievement of operating efficiencies and cost savings; our plans to expand our offering of ancillary services (therapy and home health); our plans to expand existing communities; the expected project costs for our expansion program; our expected levels of expenditures and reimbursements (and the timing thereof); our expectations for the performance of our entrance fee communities; our ability to anticipate, manage and address industry trends and their effect on our business; and our ability to increase revenues, earnings, Adjusted EBITDA, Cash From Facility Operations, and/or Facility Operating Income. Forward-looking statements are generally identifiable by use of forward-looking terminology such as "may," "will," "should," "potential," "intend," "expect," "endeavor," "seek," "anticipate," "estimate," "overestimate," "underestimate," "believe," "could," "would," "project," "predict," "continue," "plan" or other similar words or expressions. Forward-looking statements are based on certain assumptions or estimates, discuss future expectations, describe future plans and strategies, contain projections of results of operations or of financial condition, or state other forward-looking information. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Although we believe that the expectations reflected in such forward-looking statements are based on reasonable assumptions, actual results and performance could differ materially from those set forth in the forward-looking statements. Factors which could have a material adverse effect on our operations and future prospects or which could cause events or circumstances to differ from these forward-looking statements include, but are not limited to, the risk associated with the current global economic crisis and its impact upon capital markets and liquidity; our inability to extend (or refinance) debt as it matures or replace our amended credit facility when it matures; the risk that we may not be able to satisfy the conditions precedent to exercising the extension options associated with certain of our debt agreements; events which adversely affect the ability of seniors to afford our monthly resident fees or entrance fees; the conditions of housing markets in certain geographic areas; our ability to generate sufficient cash flow to cover required interest and long-term operating lease payments; the effect of our indebtedness and long-term operating leases on our liquidity; the risk of loss of property pursuant to our mortgage debt and long-term lease obligations; the 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; the risk that we may be required to post additional cash collateral in connection with our interest rate swaps; the risk that continued market deterioration could jeopardize the performance of certain of our counterparties' obligations; changes in governmental reimbursement programs; our limited operating history on a combined basis; our ability to effectively manage our growth; our ability to maintain consistent quality control; delays in obtaining regulatory approvals; our ability to integrate acquisitions into our operations; competition for the acquisition of assets; our ability to obtain additional capital on terms acceptable to us; a decrease in the overall demand for senior housing; our vulnerability to economic downturns; acts of nature in certain geographic areas; terminations of our resident agreements and vacancies in the living spaces we lease; increased competition for skilled personnel; increased union activity; departure of our key officers; increases in market interest rates; environmental contamination at any of our facilities; failure to comply with existing environmental laws; an adverse determination or resolution of complaints filed against us; the cost and difficulty of complying with increasing and evolving regulation; and other risks detailed from time to time in our filings with the Securities and Exchange Commission, including our Annual Report on Form 10-K and Quarterly Reports on Form 10-Q. When considering forward-looking statements, you should keep in mind the risk factors and other cautionary statements in such SEC filings. Readers are cautioned not to place undue reliance on any of these forward-looking statements, which reflect our management's views as of the date of this press release and/or the associated earnings conference call. The factors discussed above and the other factors noted in our SEC filings from time to time could cause our actual results to differ significantly from those contained in any forward-looking statement. We cannot guarantee future results, levels of activity, performance or achievements and we expressly disclaim any obligation to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in our expectations with regard thereto or change in events, conditions or circumstances on which any statement is based.

                  Condensed Consolidated Statements of Operations
               (Unaudited, in thousands, except for per share data)

                                       Three Months Ended   Six Months Ended
                                            June 30,            June 30,
                                            --------            --------
                                           2009      2008      2009      2008
                                           ----      ----      ----      ----
    Revenue
      Resident fees                    $499,459  $475,937  $995,688  $954,772
      Management fees                     1,298     2,264     3,015     4,077
                                          -----     -----     -----     -----
        Total revenue                   500,757   478,201   998,703   958,849
                                        -------   -------   -------   -------

    Expense
      Facility operating expense
       (excluding depreciation and
       amortization of $45,558,
       $47,204, $91,251 and $98,094,
       respectively)                    316,586   306,526   634,698   611,585
      General and administrative
       expense (including non-cash
       stock-based compensation
       expense of $6,871, $8,621,
       $13,680 and $16,631,
       respectively)                     31,721    40,297    65,428    76,685
      Facility lease expense             68,434    67,199   136,175   135,011
      Depreciation and amortization      67,262    68,876   135,395   140,816
                                         ------    ------   -------   -------
        Total operating expense         484,003   482,898   971,696   964,097
                                        -------   -------   -------   -------
        Income (loss) from operations    16,754    (4,697)   27,007    (5,248)

    Interest income                         328     3,160     1,148     4,786
    Interest expense:
      Debt                              (33,450)  (37,424)  (66,271)  (73,295)
      Amortization of deferred
       financing costs                   (3,390)   (2,379)   (4,932)   (3,936)
      Change in fair value of
       derivatives and amortization       7,900    36,743     3,615    (8,890)
    Loss on extinguishment of
     debt                                (1,740)     (231)   (1,740)   (3,052)
    Equity in earnings (loss) of
     unconsolidated ventures                581      (935)    1,176    (1,108)
    Other non-operating (loss)
     income                                  (8)     (493)    4,224      (493)
                                             --      ----     -----      ----
    Loss before income taxes            (13,025)   (6,256)  (35,773)  (91,236)
    Benefit for income taxes              2,495     2,771    11,607    32,658
                                          -----     -----    ------    ------
        Net loss                       $(10,530)  $(3,485) $(24,166) $(58,578)
                                       ========   =======  ========  ========

        Basic and diluted loss per
         share                           $(0.10)   $(0.03)   $(0.23)   $(0.57)
                                         ======    ======    ======    ======

        Weighted average shares used
         in computing basic and
         diluted loss per share         106,042   101,856   103,902   101,925
                                        =======   =======   =======   =======

        Dividends declared per share         $-     $0.25        $-     $0.50
                                             ==     =====        ==     =====



                       Condensed Consolidated Balance Sheets
                                  (in thousands)

                                      June 30, 2009 December 31, 2008
                                      ------------- -----------------
                                       (unaudited)

    Cash and cash equivalents               $95,611           $53,973
    Cash and escrow deposits -
     restricted                              97,899            86,723
    Accounts receivable, net                 95,341            91,646
    Other current assets                     54,264            48,443
                                             ------            ------
        Total current assets                343,115           280,785
    Property, plant, and equipment and
         leasehold intangibles, net       3,652,076         3,697,834
    Other assets, net                       492,858           470,639
                                            -------           -------
        Total assets                     $4,488,049        $4,449,258
                                         ==========        ==========

    Current liabilities                    $642,170          $646,012
    Long-term debt, less current
     portion                              2,292,547         2,235,000
    Other liabilities                       438,563           607,645
                                            -------           -------
        Total liabilities                 3,373,280         3,488,657
    Stockholders' equity                  1,114,769           960,601
                                          ---------           -------
        Total liabilities and
         stockholders' equity            $4,488,049        $4,449,258
                                         ==========        ==========



                  Condensed Consolidated Statements of Cash Flows
                             (Unaudited, in thousands)

                                                      Six Months Ended
                                                           June 30,
                                                      ----------------
                                                         2009      2008
                                                         ----      ----
    Cash Flows from Operating Activities
    Net loss                                         $(24,166) $(58,578)
    Adjustments to reconcile net loss to net
     cash provided by operating activities:
        Loss on extinguishment of debt                  1,740     3,052
        Depreciation and amortization                 140,327   144,752
        Equity in (earnings) loss of
         unconsolidated ventures                       (1,176)    1,108
        Distributions from unconsolidated ventures
         from cumulative share of net earnings             11     1,372
        Amortization of deferred gain                  (2,171)   (2,171)
        Amortization of entrance fees                 (10,342)  (11,820)
        Proceeds from deferred entrance fee revenue    10,590     7,957
        Deferred income tax benefit                   (11,517)  (34,194)
        Change in deferred lease liability              8,280    10,966
        Change in fair value of derivatives and
         amortization                                  (3,615)    8,890
        Gain on sale of assets                         (4,352)        -
        Non-cash stock-based compensation              13,680    16,631
      Changes in operating assets and liabilities:
        Accounts receivable, net                       (3,039)   (8,459)
        Prepaid expenses and other assets, net         (4,484)    2,248
        Accounts payable and accrued expenses          11,813   (16,163)
        Tenant refundable fees and security deposits  (12,076)    1,368
        Deferred revenue                                8,310    (2,666)
        Other                                          (4,741)   12,431
                                                       ------    ------
          Net cash provided by operating activities   113,072    76,724
                                                      -------    ------
    Cash Flows from Investing Activities
        Decrease in lease security
         deposits and lease acquisition
         deposits, net                                  1,480     1,872
        Increase in cash and escrow deposits
         - restricted                                 (53,867)   (3,833)
        Net proceeds from sale of property, plant
         and equipment                                    210         -
        Additions to property, plant, and
         equipment and leasehold intangibles,
         net of related payables                      (62,934)  (87,668)
        Acquisition of assets, net of
         related payables and cash received              (190)   (1,207)
        (Issuance of) payment on notes
         receivable, net                                 (795)   39,661
        Investment in unconsolidated ventures          (1,106)     (493)
        Distributions received from
         unconsolidated ventures                          790       154
        Proceeds from sale leaseback transaction        9,166         -
        Proceeds from sale of
         unconsolidated venture                         8,831         -
                                                        -----   -------
          Net cash used in investing activities       (98,415)  (51,514)
                                                      -------   -------
    Cash Flows from Financing Activities
        Proceeds from debt                             50,519   444,347
        Repayment of debt and capital lease
         obligations                                  (15,733) (224,192)
        Proceeds from line of credit                   60,446   170,000
        Repayment of line of credit                  (219,899) (318,000)
        Payment of dividends                                -   (77,852)
        Purchase of treasury stock                          -   (20,020)
        Payment of financing costs, net of
         related payables                              (7,327)  (13,424)
        Proceeds from public equity offering, net     163,908         -
        Other                                            (476)     (803)
        Refundable entrance fees:
             Proceeds from refundable entrance fees     7,736    10,912
             Refunds of entrance fees                 (12,193)   (8,475)
        Recouponing and payment of swap termination         -   (27,122)
        Cash portion of loss on
         extinguishment of debt                             -    (1,043)
                                                       ------    ------
             Net cash provided by (used in)
              financing activities                     26,981   (65,672)
                                                       ------   -------
                    Net increase (decrease) in
                     cash and cash equivalents         41,638   (40,462)
                    Cash and cash equivalents at
                     beginning of period               53,973   100,904
                                                       ------   -------
                    Cash and cash equivalents at end
                     of period                        $95,611   $60,442
                                                      =======   =======

Non-GAAP Financial Measures

Adjusted EBITDA

Adjusted EBITDA is a measure of operating performance that is not calculated in accordance with U.S. generally accepted accounting principles ("GAAP"). Adjusted EBITDA should not be considered in isolation or as a substitute for net income, income from operations or cash flows provided by or used in operations, as determined in accordance with GAAP. Adjusted EBITDA is a key measure of the Company's operating performance used by management to focus on operating performance and management without mixing in items of income and expense that relate to long-term contracts and the financing and capitalization of the business. We define Adjusted EBITDA as net income (loss) before provision (benefit) for income taxes, non-operating (income) loss items, depreciation and amortization (including non-cash impairment charges), straight-line lease expense (income), amortization of deferred gain, amortization of deferred entrance fees, and non-cash compensation expense and including entrance fee receipts and refunds.

We believe Adjusted EBITDA is useful to investors in evaluating our performance, results of operations and financial position for the following reasons:

  • It is helpful in identifying trends in our day-to-day performance because the items excluded have little or no significance to our day-to-day operations;
  • It provides an assessment of controllable expenses and affords management the ability to make decisions which are expected to facilitate meeting current financial goals as well as achieve optimal financial performance; and
  • It is an indication to determine if adjustments to current spending decisions are needed.

The table below reconciles Adjusted EBITDA from net loss for the three and six months ended June 30, 2009 and 2008 (in thousands):

                                      Three Months Ended    Six Months Ended
                                           June 30,            June 30,
                                      -------------------   -----------------
                                       2009(1)  2008(1)    2009(1)  2008(1)
                                       -------  --------   -------  --------
    Net loss                          $(10,530)  $(3,485) $(24,166) $(58,578)
    Benefit for income taxes            (2,495)   (2,771)  (11,607)  (32,658)
    Equity in (earnings) loss of
     unconsolidated ventures              (581)      935    (1,176)    1,108
    Loss on extinguishment of debt       1,740       231     1,740     3,052
    Other non-operating loss (income)        8       493    (4,224)      493
    Interest expense:
        Debt                            26,068    30,635    51,795    59,622
        Capitalized lease obligation     7,382     6,789    14,476    13,673
        Amortization of deferred
         financing costs                 3,390     2,379     4,932     3,936
        Change in fair value of
         derivatives and amortization   (7,900)  (36,743)   (3,615)    8,890
    Interest income                       (328)   (3,160)   (1,148)   (4,786)
                                          ----    ------    ------    ------
    Income (loss) from operations       16,754    (4,697)   27,007    (5,248)
    Depreciation and amortization       67,262    68,876   135,395   140,816
    Straight-line lease expense          4,032     5,215     8,280    10,966
    Amortization of deferred gain       (1,085)   (1,086)   (2,171)   (2,171)
    Amortization of entrance fees       (5,232)   (5,129)  (10,342)  (11,820)
    Non-cash compensation expense        6,871     8,621    13,680    16,631
    Entrance fee receipts(2)             9,816    12,597    18,326    18,869
    Entrance fee disbursements          (6,357)   (4,843)  (12,193)   (8,475)
                                        ------    ------   -------    ------
    Adjusted EBITDA                    $92,061   $79,554  $177,982  $159,568
                                       =======   =======  ========  ========

    (1)  The calculation of Adjusted EBITDA includes integration and other
         non-recurring costs totaling $10.4 million for the three months ended
         June 30, 2008 and $13.3 million for the six months ended June 30,
         2008.  These amounts include the effect of an $8.0 million reserve
         established for certain litigation.  Integration and other non-
         recurring costs for the three and six months ended June 30, 2009 were
         not material to the condensed consolidated financial statements.

    (2) Includes the receipt of refundable and nonrefundable entrance fees.

Cash From Facility Operations

Cash From Facility Operations (CFFO) is a measurement of liquidity that is not calculated in accordance with GAAP and should not be considered in isolation as a substitute for cash flows provided by or used in operations, as determined in accordance with GAAP. We define CFFO as net cash provided by (used in) operating activities adjusted for changes in operating assets and liabilities, deferred interest and fees added to principal, refundable entrance fees received, entrance fee refunds disbursed, lease financing debt amortization with fair market value or no purchase options, other, and recurring capital expenditures. Recurring capital expenditures include expenditures capitalized in accordance with GAAP that are funded from CFFO. Amounts excluded from recurring capital expenditures consist primarily of unusual or non-recurring capital items (including integration capital expenditures), facility purchases and/or major projects or renovations that are funded using financing proceeds and/or proceeds from the sale of facilities that are held for sale.

We believe CFFO is useful to investors in evaluating our liquidity for the following reasons:

  • It provides an assessment of our ability to facilitate meeting current financial and liquidity goals.
  • To assess our ability to:
             (i)   service our outstanding indebtedness;
             (ii)  pay dividends; and
             (iii) make regular recurring capital expenditures to maintain
                   and improve our facilities.

The table below reconciles CFFO from net cash provided by operating activities for the three and six months ended June 30, 2009 and 2008 (in thousands):

                                      Three Months Ended    Six Months Ended
                                             June 30,           June 30,
                                      ------------------    ----------------
                                         2009(1)  2008(1)   2009(1)  2008(1)
                                         -------  -------   -------  -------

    Net cash provided by operating
     activities                          $44,315  $36,095  $113,072  $76,724
    Changes in operating assets and
     liabilities                          16,150    6,546     4,217   11,241
    Refundable entrance fees
     received(2)(3)                        4,098    7,420     7,736   10,912
    Entrance fee refunds disbursed        (6,357)  (4,843)  (12,193)  (8,475)
    Recurring capital expenditures, net   (3,888)  (6,614)   (6,543) (12,651)
    Lease financing debt amortization
     with fair market value or no
     purchase options                     (1,798)  (1,662)   (3,578)  (3,287)
    Reimbursement of operating
     expenses and other                        -     (269)        -      794
                                         -------  -------  --------  -------
    Cash From Facility Operations        $52,520  $36,673  $102,711  $75,258
                                         =======  =======  ========  =======

    (1) The calculation of CFFO includes integration and other non-recurring
        costs totaling $10.4 million for the three months ended June 30, 2008
        and $13.3 million for the six months ended June 30, 2008.  These
        amounts include the effect of an $8.0 million reserve established for
        certain litigation.  Integration and other non-recurring costs for the
        three and six months ended June 30, 2009 were not material to the
        condensed consolidated financial statements.
    (2) Total entrance fee receipts for the three months ended June 30, 2009
        and 2008 were $9.8 million and $12.6 million, respectively, including
        $5.7 million and $5.2 million, respectively, of non-refundable
        entrance fee receipts included in net cash provided by operating
        activities.  Total entrance fee receipts for the six months ended June
        30, 2009 and 2008 were $18.3 million and $18.9 million, respectively,
        including $10.6 million and $8.0 million, respectively, of non-
        refundable entrance fee receipts included in net cash provided by
        operating activities.
        

Beginning in the second quarter of 2009, the calculation of CFFO per share is based on weighted average outstanding common shares for the period, excluding any unvested restricted shares. Previously, the calculation of CFFO per outstanding common share was based on outstanding shares at the end of the period, excluding any unvested restricted shares. The change in methodology does not change any historically reported CFFO numbers.

Facility Operating Income

Facility Operating Income is not a measurement of operating performance calculated in accordance with GAAP and should not be considered in isolation as a substitute for net income, income from operations, or cash flows provided by or used in operations, as determined in accordance with GAAP. We define Facility Operating Income as net income (loss) before provision (benefit) for income taxes, non-operating (income) loss items, depreciation and amortization (including non-cash impairment charges), facility lease expense, general and administrative expense, including non-cash stock compensation expense, amortization of deferred entrance fee revenue and management fees.

We believe Facility Operating Income is useful to investors in evaluating our facility operating performance for the following reasons:

  • It is helpful in identifying trends in our day-to-day facility performance;
  • It provides an assessment of our revenue generation and expense management; and
  • It provides an indicator to determine if adjustments to current spending decisions are needed.

The table below reconciles Facility Operating Income from net loss for the three and six months ended June 30, 2009 and 2008 (in thousands):

                                      Three Months     Six Months Ended
                                     Ended June 30,         June 30,
                                  ------------------   ----------------
                                      2009      2008      2009      2008
                                      ----      ----      ----      ----

    Net loss                      $(10,530)  $(3,485) $(24,166) $(58,578)
    Benefit for income taxes        (2,495)   (2,771)  (11,607)  (32,658)
    Equity in (earnings) loss of
     unconsolidated ventures          (581)      935    (1,176)    1,108
    Loss on
     extinguishment of
     debt                            1,740       231     1,740     3,052
    Other non-operating loss
     (income )                           8       493    (4,224)      493
    Interest expense:
        Debt                        26,068    30,635    51,795    59,622
        Capitalized lease
         obligation                  7,382     6,789    14,476    13,673
        Amortization of deferred
         financing costs             3,390     2,379     4,932     3,936
        Change in fair value of
         derivatives and
         amortization               (7,900)  (36,743)   (3,615)    8,890
    Interest income                   (328)   (3,160)   (1,148)   (4,786)
                                      ----    ------    ------    ------
    Income (loss) from operations   16,754    (4,697)   27,007    (5,248)
    Depreciation and
     amortization                   67,262    68,876   135,395   140,816
    Facility lease expense          68,434    67,199   136,175   135,011
    General and administrative
     (including non-cash
      stock compensation expense)   31,721    40,297    65,428    76,685
    Amortization of
     entrance fees(1)               (5,232)   (5,129)  (10,342)  (11,820)
    Management fees                 (1,298)   (2,264)   (3,015)   (4,077)
                                    ------    ------    ------    ------
    Facility Operating Income     $177,641  $164,282  $350,648  $331,367
                                  ========  ========  ========  ========

    (1) Entrance fee sales, net of refunds paid, provided $3.5 million and
        $7.8 million of cash for the three months ended June 30, 2009 and
        2008, respectively, and $6.1 million and $10.4 million of cash for
        the six months ended June 30, 2009 and 2008, respectively.

SOURCE Brookdale Senior Living Inc.

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