Brookdale Announces Fourth Quarter and Full Year 2015 Results

• Cash From Facility Operations ("CFFO")⁽¹⁾ of $0.58 per share for the fourth quarter of 2015, a 9.4% increase from $0.53 per share in the fourth quarter of 2014 and $2.40 per share for the full year 2015, excluding integration, transaction, transaction-related and electronic medical records ("EMR") roll-out costs in all periods. 
• Average occupancy for all consolidated communities in the fourth quarter of 2015 of 86.8%, an increase of 10 basis points from the third quarter of 2015.
• Adjusted EBITDA⁽¹⁾ of $222.2 million in the fourth quarter of 2015, a 4.4% increase from the fourth quarter of 2014, excluding integration, transaction, transaction-related and EMR roll-out costs in both periods.
• Net loss attributable to Brookdale common stockholders of $0.94 per share for the fourth quarter of 2015, compared to $0.58 for the fourth quarter of 2014, and  net loss attributable to Brookdale common stockholders of $2.48 per share for the full year of 2015. 

⁽¹⁾ CFFO per share and Adjusted EBITDA are financial measures that are not calculated in accordance with GAAP.  Please see "Reconciliation of Non-GAAP Financial Measures" below for the Company's definitions of each of these financial measures and a reconciliation of each measure to net income (loss).

Andy Smith, Brookdale's CEO, said, "Our fourth quarter results demonstrate the progress we are making on our operational execution.  Stabilized occupancy and rate, expense control and operating expense synergies produced same community operating income growth of more than 4% over the fourth quarter of 2014.  We are well positioned going into 2016.  Our teams are in place, and we are focused on extending the fourth quarter progress through improved occupancy and increased rates, maintaining expense discipline, delivering more synergies and, importantly, providing our residents with high quality care and service."

Financial Results

The year-over-year quarterly comparison is the first since the Company's acquisition of Emeritus that includes the combined results in both quarters.  Total revenue for the fourth quarter of 2015 was $1.2 billion. Resident fees of $1.0 billion were level with the fourth quarter of 2014.  Average monthly revenue per unit for the consolidated senior housing portfolio was $4,302 in the fourth quarter of 2015, an increase of $82, or 1.9%, compared with the fourth quarter of 2014.  Average occupancy for all consolidated communities during the fourth quarter of 2015 was 86.8%, up 10 basis points from the third quarter of 2015, though below the 88.3% average occupancy for the fourth quarter of 2014. 

Facility operating expenses for the fourth quarter of 2015 were $697.3 million, a decline of $10.7 million, or 1.5%, from the fourth quarter of 2014, primarily due to cost management and operating cost synergies. Excluding management services in all periods, Brookdale's consolidated operating margin was 33.0% for the fourth quarter of 2015 versus 32.1% for the fourth quarter of 2014.  

Based on the current quarter review of the Company's deferred tax assets, the Company recorded a $105.3 million valuation allowance on its deferred tax assets during the fourth quarter of 2015, mainly attributed to the Company's Net Operating Losses.  Net loss attributable to Brookdale common stockholders for the fourth quarter of 2015 was $174.3 million, or $0.94 per share, versus net loss attributable to Brookdale common stockholders of $106.5 million, or $0.58 per share, in the fourth quarter of 2014.

Non-GAAP Financial Measures

For the Company's definitions of Adjusted EBITDA, CFFO, CFFO per share, and Facility Operating Income, as well as a reconciliation of each of the non-GAAP financial measures to net income (loss), see "Reconciliation of Non-GAAP Financial Measures" below.

Adjusted EBITDA, excluding integration, transaction, transaction-related and EMR roll-out costs, was $222.2 million for the fourth quarter of 2015, an increase of $9.3 million, or 4.4%, compared with the fourth quarter of 2014.  Adjusted EBITDA includes integration, transaction, transaction-related and EMR roll-out costs for the three months ended December 31, 2015 and December 31, 2014 of $24.7 million and $46.0 million, respectively.

CFFO was $81.8 million in the fourth quarter of 2015, or $0.44 per share.  Excluding integration, transaction, transaction-related and EMR roll-out costs, CFFO was $106.6 million, or $0.58 per share, for the fourth quarter of 2015, an increase of $9.3 million, or 9.5%, compared with the fourth quarter of 2014. CFFO includes integration, transaction, transaction-related and EMR roll-out costs for the three months ended December 31, 2015 and December 31, 2014 of $24.9 million (including $0.2 million of debt modification costs excluded from Adjusted EBITDA) and $46.0 million, respectively.

Facility Operating Income was $341.7 million in the fourth quarter of 2015, an increase of $7.8 million, or 2.3%, compared with the fourth quarter of 2014.  

Operating Activities

The Company reports information on five segments.  Three segments (Retirement Centers, Assisted Living and CCRCs – Rental) constitute the Company's consolidated senior housing portfolio.  The fourth segment, Brookdale Ancillary Services, includes the Company's outpatient therapy, home health and hospice services.  The fifth segment, Management Services, includes the services provided to unconsolidated communities that are operated under management agreements.

Senior Housing

Revenue for the consolidated senior housing portfolio was $921.0 million for the fourth quarter of 2015, a decline of 0.8% from the fourth quarter of 2014.  The revenue decrease reflects a 150 basis point decline in occupancy and a 1.9% increase in rate over the fourth quarter of 2014.  Facility operating expenses were $594.7 million for the fourth quarter of 2015, a decline of 3.2% from the fourth quarter of 2014.  Operating income for the senior housing portfolio increased by $11.9 million, or 3.8%, to $326.2 million for the fourth quarter of 2015.

Same community revenues for the consolidated senior housing portfolio for the three months ended December 31, 2015 showed revenues declined 0.4% over the corresponding period in 2014, as revenue per unit increased by 1.7% and occupancy declined by 190 basis points.  Consolidated same community expenses for the fourth quarter of 2015 declined by 2.7% over the fourth quarter of 2014 with same community operating income for the senior housing portfolio for the fourth quarter of 2015 increasing 4.1% over the fourth quarter of 2014.  

Brookdale Ancillary Services

Revenue for the Company's ancillary services segment increased $6.4 million, or 5.7%, to $119.9 million for the fourth quarter of 2015 versus the prior year fourth quarter.  The revenue increase was driven primarily by a volume increase in home health and hospice. Ancillary services operating expenses for the fourth quarter of 2015 increased $8.8 million, or 9.3%, over the fourth quarter of 2014, primarily due to an increase in expenses related to expansion of the ancillary services into the former Emeritus communities.  As a result, ancillary services operating income for the fourth quarter of 2015 was $17.3 million, a decline of $2.3 million, or 11.9%, versus the fourth quarter of 2014.

Transactions

During the fourth quarter of 2015, the Company acquired the underlying real estate associated with five communities that previously were leased for an aggregate purchase price of $78.4 million. The Company financed the transaction with seller financing.

During 2015, the Company began an initiative to dispose of 34 communities.  Sixteen of these communities were sold during the fourth quarter of 2015 for an aggregate selling price of $76.9 million (including $33.2 million of seller financing). The results of operations of the disposed communities were previously reported in the Retirement Centers, Assisted Living, and CCRCs - Rental segments.

The Company has designated 17 communities as assets held for sale as of December 31, 2015.  The results of operations of these communities are reported in the Assisted Living and CCRCs – Rental segments within the consolidated financial statements for the year ended December 31, 2015. The sale of the 17 communities is expected to occur in 2016, although there can be no assurance that the transactions will close or if they do, when the actual closing will occur.

During the fourth quarter of 2015, the Company recorded an impairment charge of $57.9 million. The impairments primarily were related to the 16 assets that were sold, the assets held for sale, and certain assets on the consolidated balance sheet whose fair value was determined to be below carrying value.

Outlook

For the full year 2016, the Company expects CFFO per share in a range of $2.45 to $2.55, excluding integration, transaction, transaction-related and EMR roll-out costs and costs associated with certain strategic projects related to refining the Company's strategy, building out enterprise-wide capabilities for the post-merger platform and reducing costs and achieving synergies by capitalizing on scale.  This guidance excludes the potential impact of any future acquisition or disposition activity other than the planned disposition of 17 communities classified as held for sale.