BROOKDALE SENIOR LIVING INC. 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. 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. 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 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 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 impacts of the COVID-19 pandemic, including the response efforts
of federal, state, and local government authorities, businesses, individuals,
and us on our business, results of operations, cash flow, revenue, expenses,
liquidity, and our strategic initiatives, including plans for future growth,
which will depend on many factors, some of which cannot be foreseen, including
the duration, severity, and breadth of the pandemic and any resurgence or
variants of the disease, the impact of COVID-19 on the nation's economy and debt
and equity markets and the local economies in our markets, the development,
availability, utilization, and efficacy of COVID-19 testing, therapeutic agents,
and vaccines and the prioritization of such resources among businesses and
demographic groups, government financial and regulatory relief efforts that may
become available to business and individuals, including our ability to qualify
for and satisfy the terms and conditions of financial relief, perceptions
regarding the safety of senior living communities during and after the pandemic,
changes in demand for senior living communities and our ability to adapt our
sales and marketing efforts to meet that demand, the impact of COVID-19 on our
residents' and their families' ability to afford our resident fees, including
due to changes in unemployment rates, consumer confidence, housing markets, and
equity markets caused by COVID-19, changes in the acuity levels of our new
residents, the disproportionate impact of COVID-19 on seniors generally and
those residing in our communities, the duration and costs of our response
efforts, including increased equipment, supplies, labor, litigation, testing,
vaccination clinic, health plan, and other expenses, potentially greater use of
contract labor and overtime due to COVID-19 and general labor market conditions,
the impact of COVID-19 on our ability to complete financings and refinancings of
various assets, or other transactions or to generate sufficient cash flow to
cover required debt, interest, and lease payments and to satisfy financial and
other covenants in our debt and lease documents, increased regulatory
requirements, including the costs of unfunded, mandatory testing of residents
and associates and provision of test kits to our health plan participants,
increased enforcement actions resulting from COVID-19, government action that
may limit our collection or discharge efforts for delinquent accounts, and the
frequency and magnitude of legal actions and liability claims that may arise due
to COVID-19 or our 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 (including due to the pandemic), and increased competition;
conditions of housing markets, regulatory changes, acts of nature, and the
effects of climate change in geographic areas where we are concentrated;
terminations of our resident agreements and vacancies in the living spaces we
lease, including due to the pandemic; failure to maintain the security and
functionality of our information systems, to prevent a cybersecurity attack or
breach, or to comply with applicable privacy and consumer protection laws,
including HIPAA; our ability to complete our capital expenditures in accordance
with our plans; our ability to identify and pursue development, investment, and
acquisition opportunities and our ability to successfully integrate
acquisitions; competition for the acquisition of assets; our 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
our ability to identify and pursue any such opportunities in the future; risks
related to the implementation of our strategy, including initiatives undertaken
to execute on our strategic priorities and their effect on our results; limits
on our 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 our communities
that affect our ability to obtain financing or extend or refinance debt as it
matures and our financing costs; our ability to generate sufficient cash flow to
cover required interest, principal, and long-term lease payments and to fund our
planned capital projects; the effect of our non-compliance with any of our debt
or lease agreements (including the financial covenants contained therein),
including the risk of lenders or lessors declaring a cross default in the event
of our non-compliance with any such agreements and the risk of loss of our
property securing leases and indebtedness due to any resulting lease
terminations and foreclosure actions; the effect of our indebtedness and
long-term leases on our liquidity and our ability to operate our business;
increases in market interest rates that increase the
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costs of our debt obligations; our ability to obtain additional capital on terms
acceptable to us; departures of key officers and potential disruption caused by
changes in management; increased competition for, or a shortage of, associates
(including due to the pandemic or 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 our communities; failure to comply with existing
environmental laws; an adverse determination or resolution of complaints filed
against us, including putative class action complaints; the cost and difficulty
of complying with increasing and evolving regulation; costs to respond to, and
adverse determinations resulting from, government reviews, audits and
investigations; changes in, or our 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 we operate; actions of
activist stockholders, including a proxy contest; 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, 2021 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 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, except as required by law, 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.
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Unless otherwise specified, references to "Brookdale," "we," "us," "our," or
"the Company" in this Quarterly Report on Form 10-Q mean Brookdale Senior Living
Inc. together with its consolidated subsidiaries.
Overview
We are the nation's premier operator of senior living communities, operating and managing 674 communities in 41 states as ofJune 30, 2022 , with the ability to serve more than 60,000 residents. We offer our residents access to a broad continuum of services across the most attractive sectors of the senior living industry. We operate and manage independent living, assisted living, memory care, and continuing care retirement communities ("CCRCs"). Our goal is to be the first choice in senior living by being the nation's most trusted and effective senior living provider and employer. Our senior living communities and our comprehensive network help to provide seniors with care and services in an environment that feels like home. Our expertise in healthcare, hospitality, and real estate provides residents with opportunities to improve wellness, pursue passions, and stay connected with friends and loved ones. 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, which we believe enables them to maintain residency with us for a longer period of time. The ability of residents to age-in-place is also beneficial to our residents' families who are concerned with care decisions for their elderly relatives.
COVID-19 Pandemic Update
The COVID-19 pandemic significantly disrupted the senior living industry and our business beginning inMarch 2020 . We expect the impact of this disruption to continue into 2023 as we continue to make progress to rebuild occupancy lost due to the pandemic. The health and wellbeing of our residents and associates has been and continues to be our highest priority. Rebuilding Occupancy. We continue to execute on key initiatives to rebuild occupancy lost due to the pandemic while maintaining rate discipline. FromMarch 2020 throughFebruary 2021 , we lost 1,330 basis points of weighted average consolidated senior housing occupancy. FromFebruary 2021 throughJuly 2022 , we increased our weighted average consolidated senior housing occupancy by 650 basis points to 75.9%. Sequentially from the first quarter of 2022, our weighted average consolidated senior housing occupancy increased by 120 bps to 74.6% for the second quarter of 2022. The table below sets forth our recent consolidated occupancy trend. Q1 Q2 Q3 Q4 Q1 Q2 2021 2021 2021 2021 2022 2022 Weighted average 69.6 % 70.5 % 72.5 % 73.5 % 73.4 % 74.6 % Quarter end 70.6 % 72.6 % 74.2 % 74.5 % 75.0 % 76.6 % Jan Feb Mar Apr May Jun Jul 2022 2022 2022 2022 2022 2022 2022 Weighted average 73.4 % 73.3 % 73.6 % 73.9 % 74.6 % 75.2 % 75.9 % Month end 74.2 % 74.4 % 75.0 % 75.3 % 76.2 % 76.6 % 77.1 % During the three and six months endedJune 30, 2022 , various communities experienced restrictions on new resident move-ins due to the pandemic. As ofJuly 31, 2022 , substantially all of our communities were open for new resident move-ins. We may revert to more restrictive measures at our communities, including restrictions on visitors and move-ins, if the pandemic worsens, as a result of infections at a community, as necessary to comply with regulatory requirements, or at the direction of authorities having jurisdiction. We cannot predict with reasonable certainty when our occupancy will return to pre-COVID-19 pandemic levels. Pandemic Expenses. For the three and six months endedJune 30, 2022 , we recognized$1.9 million and$12.3 million , respectively, of facility operating expense for incremental direct costs to respond to the pandemic. For the three and six months endedJune 30, 2021 , we recognized$9.7 million and$37.1 million , respectively, of facility operating expense for incremental direct costs to respond to the pandemic. The direct costs include those for: acquisition of additional personal protective equipment, medical equipment, and cleaning and disposable food service supplies; enhanced cleaning and environmental sanitation; increased employee-related costs, including labor, workers' compensation, and health plan expense; and COVID-19 testing of residents and associates where not otherwise covered by government payor or third-party insurance sources. On a cumulative basis since the beginning of fiscal 2020 throughJune 30, 2022 , we have incurred$185.5 million of pandemic related facility operating expense. For the three and six months endedJune 30, 2022 , we recorded$2.6 million and$11.7 21 -------------------------------------------------------------------------------- million, respectively, of non-cash impairment charges in our operating results for our operating lease right-of-use assets and property, plant and equipment and leasehold intangibles, primarily due to decreased occupancy and future cash flow estimates at certain communities as a result of the continuing impacts of the COVID-19 pandemic. For the three and six months endedJune 30, 2021 , we recorded$2.1 million and$12.8 million , respectively, of such non-cash impairment charges. Phase 4 Provider Relief Fund Grants. During the three months endedDecember 31, 2021 , we applied for the Phase 4 general distribution from thePublic Health and Social Services Emergency Fund ("Provider Relief Fund ") administered by theU.S. Department of Health and Human Services ("HHS"), under which grants have been made available to eligible healthcare providers for healthcare related expenses or lost revenues attributable to COVID-19. We accepted approximately$60.0 million of Phase 4 grants onAugust 5, 2022 . We expect to recognize the Phase 4 grants in income during the three months endedSeptember 30, 2022 . Employee Retention Credit. We were eligible to claim the employee retention credit for certain of our associates under the Coronavirus Aid, Relief, and Economic Security Act of 2020 ("CARES Act"). We recognized$0.9 million and$9.9 million for the three and six months endedJune 30, 2021 , respectively, of employee retention credits on wages paid fromMarch 12, 2020 toDecember 31, 2020 within other operating income, for which we have received$4.6 million in cash as ofJune 30, 2022 . The credit was modified and extended by subsequent legislation for wages paid fromJanuary 1, 2021 throughDecember 31, 2021 . During the three and six months endedJune 30, 2022 , we recognized$4.7 million of employee retention credits on wages paid in 2021 within other operating income based upon our current estimates. We have a receivable for the remaining$10.1 million included within prepaid expenses and other current assets, net on the condensed consolidated balance sheet as ofJune 30, 2022 . We cannot predict with reasonable certainty the impacts that COVID-19 ultimately will have on our business, results of operations, cash flow, and liquidity, and our response efforts may continue to delay or negatively impact our strategic initiatives, including plans for future growth. The ultimate impacts of COVID-19 will depend on many factors, some of which cannot be foreseen, including the duration, severity, and breadth of the pandemic and any resurgence or variants of the disease; the impact of COVID-19 on the nation's economy and debt and equity markets and the local economies in our markets; the development, availability, utilization, and efficacy of COVID-19 testing, therapeutic agents, and vaccines and the prioritization of such resources among businesses and demographic groups; government financial and regulatory relief efforts that may become available to business and individuals, including our ability to qualify for and satisfy the terms and conditions of financial relief; perceptions regarding the safety of senior living communities during and after the pandemic; changes in demand for senior living communities and our ability to adapt our sales and marketing efforts to meet that demand; the impact of COVID-19 on our residents' and their families' ability to afford our resident fees, including due to changes in unemployment rates, consumer confidence, housing markets, and equity markets caused by COVID-19; changes in the acuity levels of our new residents; the disproportionate impact of COVID-19 on seniors generally and those residing in our communities; the duration and costs of our response efforts, including increased equipment, supplies, labor, litigation, testing, vaccination clinic, health plan, and other expenses; potentially greater use of contract labor and overtime due to COVID-19 and general labor market conditions; the impact of COVID-19 on our ability to complete financings and refinancings of various assets or other transactions or to generate sufficient cash flow to cover required debt, interest, and lease payments and to satisfy financial and other covenants in our debt and lease documents; increased regulatory requirements, including the costs of unfunded, mandatory testing of residents and associates and provision of test kits to our health plan participants; increased enforcement actions resulting from COVID-19; government action that may limit our collection or discharge efforts for delinquent accounts; and the frequency and magnitude of legal actions and liability claims that may arise due to COVID-19 or our response efforts.
Community Labor
We continue to experience pressures associated with the intensely competitive labor environment. During 2021 and the six months endedJune 30, 2022 , the pressures included increased associate turnover, difficulty in timely filling open positions, and increasing wages. Continued increased competition for, or a shortage of, nurses or other associates, including due to the COVID-19 pandemic, general labor market conditions, low levels of unemployment, or general inflationary pressures, have required and may require that we enhance our pay and benefits package to compete effectively for such associates. We have increased our recruiting efforts to fill open positions and have increased our workforce sinceDecember 31, 2021 . We have reviewed wage rates in all of our markets and made appropriate adjustments, and we will monitor to remain competitive. We seek to ensure that our communities are staffed with full and part-time associates. To cover open positions, we have increased our use of more expensive contract labor and overtime. Third-party staffing agencies from which we source contract labor have increased the rates they charge which has resulted in increases in the cost of contract labor. Our labor expense in our same community portfolio for the three and six months endedJune 30, 2022 increased 14.0% and 13.6% from the three and six months endedJune 30, 2021 , respectively. The year-over-year increases in our same community labor expense primarily resulted from our increased use of contract labor and overtime as well as merit and market wage rate adjustments. Our labor expense in our same community portfolio for the three months endedJune 30, 2022 increased 0.2% sequentially from the three 22 -------------------------------------------------------------------------------- months endedMarch 31, 2022 due to increases in hours worked by associates, recent wage rate adjustments, and an additional day of expense during the three months endedJune 30, 2022 , which were offset by a decreased use of contract labor and a moderation of COVID-19 related labor costs. We expect to continue to experience labor cost pressure as a result of an anticipated increase in hours worked as our occupancy levels grow and the labor environment conditions described above. As we fill more full and part-time positions, we expect to use less contract labor and overtime.
Resident
The rates charged at communities are highly dependent on local market conditions and the competitive environment in which the communities operate. Substantially all of our private pay senior housing residency agreements allow for adjustments to the monthly rate on 90 or fewer days' notice which enables us to seek increases in monthly rates due to inflation or other factors. Increases for level of care changes or additional services are typically allowed immediately upon notice of the change. Generally, we have increased our monthly rates, including rates for care and other services, for private pay residents on an annual basis beginningJanuary 1 each year. We made the annual rate adjustment effectiveJanuary 1, 2022 for our in-place private pay residents, which was higher than our typical annual rate adjustment and resulted in a 4.6% net increase in same community RevPOR for the six months endedJune 30, 2022 compared to the six months endedJune 30, 2021 . Such adjustment reflects our increased costs associated with additional efforts to serve and care for our residents during the pandemic, the current inflationary environment, and the intensely competitive labor environment. Any use of promotional or other discounting would offset a portion of such rate adjustments in our RevPAR and RevPOR results.
Sale of Health Care Services
OnJuly 1, 2021 , we completed the sale of 80% of our equity in our Health Care Services segment to affiliates of HCA Healthcare, Inc. ("HCA Healthcare ") for a purchase price of$400.0 million in cash, subject to certain adjustments set forth in the Securities Purchase Agreement (the "Purchase Agreement") datedFebruary 24, 2021 , including a reduction for the remaining outstanding balance as of the closing of Medicare advance payments and deferred payroll tax payments related to the Health Care Services segment (the "HCS Sale"). We received net cash proceeds of$312.6 million , including$305.8 million at closing onJuly 1, 2021 and$6.8 million upon completion of the post-closing net working capital adjustment inOctober 2021 . The Purchase Agreement also contained certain agreed upon indemnities for the benefit of the purchaser. At closing of the transaction, we retained a 20% equity interest in the venture with HCA Healthcare ("HCS Venture"). The results and financial position of the Health Care Services segment were deconsolidated from our consolidated financial statements as ofJuly 1, 2021 and our 20% equity interest in the HCS Venture is accounted for under the equity method of accounting subsequent to that date. As ofJuly 1, 2021 , we recognized a$100.0 million asset within investment in unconsolidated ventures on our consolidated balance sheet for the estimated fair value of our retained 20% noncontrolling interest in the HCS Venture. We recognized a$286.5 million gain on sale, net of transaction costs, within our consolidated statement of operations for the year endedDecember 31, 2021 for the HCS Sale. Refer to Note 15 to the condensed consolidated financial statements contained in "Item 1. Financial Statements" for selected financial data for the Health Care Services segment for the three and six months endedJune 30, 2021 . OnNovember 1, 2021 , the HCS Venture sold certain home health, hospice, and outpatient therapy agencies in areas not served by HCA Healthcare to LHC Group Inc. Upon the completion of the sale, we received$35.0 million of cash distributions from the HCS Venture from the net sale proceeds, which decreased our investment in unconsolidated ventures. We continue to own a 20% equity interest in the remaining HCS Venture, which continues to operate home health and hospice agencies in areas served by HCA Healthcare.
Results of Operations
As ofJune 30, 2022 , our total operations included 674 communities with a capacity to serve over 60,000 residents. As of that date, we owned 346 communities (31,603 units), leased 295 communities (20,567 units), and managed 33 communities (4,810 units). The following discussion should be read in conjunction with our condensed consolidated financial statements and the related notes, which are included in "Item 1. Financial Statements" of this Quarterly Report on Form 10-Q. The results of operations for any particular period are not necessarily indicative of results for any future period. Transactions completed during the period ofJanuary 1, 2021 toJune 30, 2022 affect the comparability of our results of operations. 23
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We use the operating measures described below in connection with operating and managing our business and reporting our results of operations.
•Senior housing operating results and data presented on a same community basis reflect results and data of a consistent population of communities by excluding the impact of changes in the composition of our portfolio of communities. The operating results exclude natural disaster expense and related insurance recoveries. We define our same community portfolio as communities consolidated and operational for the full period in both comparison years. Consolidated communities excluded from the same community portfolio include communities acquired or disposed of since the beginning of the prior year, communities classified as assets held for sale, certain communities planned for disposition, certain communities that have undergone or are undergoing expansion, redevelopment, and repositioning projects, and certain communities that have experienced a casualty event that significantly impacts their operations. Our management uses same community operating results and data for decision making, and we believe such results and data provide useful information to investors, because it enables comparisons of revenue, expense, and other operating measures for a consistent portfolio over time without giving effect to the impacts of communities that were not consolidated and operational for the comparison periods, communities acquired or disposed during the comparison periods (or planned for disposition), and communities with results that are or likely will be impacted by completed or in-process development-related capital expenditure projects. •RevPAR, or average monthly senior housing resident fee revenue per available unit, is defined as resident fee revenue for the corresponding portfolio for the period (excluding revenue from our former Health Care Services segment, revenue for private duty services provided to seniors living outside of our 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. We measure RevPAR at the consolidated level, as well as at the segment level with respect to our Independent Living, Assisted Living andMemory Care , and CCRCs segments. Our management uses RevPAR for decision making, and we believe the measure provides useful information to investors, because the measure is an indicator of senior housing resident fee revenue performance that reflects the impact of both senior housing occupancy and rate. •RevPOR, or average monthly senior housing resident fee revenue per occupied unit, is defined as resident fee revenue for the corresponding portfolio for the period (excluding revenue from our former Health Care Services segment, revenue for private duty services provided to seniors living outside of our 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. We measure RevPOR at the consolidated level, as well as at the segment level with respect to our Independent Living, Assisted Living andMemory Care , and CCRCs segments. Our management uses RevPOR for decision making, and we believe the measure provides useful information to investors, because it reflects the average amount of senior housing resident fee revenue we derive from an occupied unit per month without factoring occupancy rates. RevPOR is a significant driver of our senior housing revenue performance. •Weighted average occupancy rate reflects the percentage of units at our owned and leased communities being utilized by residents over a reporting period. We measure occupancy rates with respect to our Independent Living, Assisted Living andMemory Care , and CCRCs segments, and also measure this metric both on a consolidated senior housing and a same community basis. Our management uses weighted average occupancy, and we believe the measure provides useful information to investors, because it is a significant driver of our senior housing revenue performance. This section includes the non-GAAP performance measure Adjusted EBITDA. See "Non-GAAP Financial Measures" below for our definition of the measure and other important information regarding such measure, including reconciliations to the most comparable GAAP measure. 24
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Comparison of Three Months Ended
Summary Operating Results
The following table summarizes our overall operating results for the three
months ended
Three Months Ended
June 30, Increase (Decrease)
(in thousands) 2022 2021 Amount Percent
Total resident fees and management fees
revenue $ 643,717 $ 678,976 $ (35,259) (5.2) %
Other operating income 8,411 1,308 7,103 NM
Facility operating expense 513,664 550,846 (37,182) (6.7) %
Net income (loss) (84,283) (83,604) (679) (0.8) %
Adjusted EBITDA 50,714 33,064 17,650 53.4 %
The decrease in total resident fees and management fees revenue was primarily
attributable to deconsolidation of results of the Health Care Services segment
effective July 1, 2021 , which resulted in a decrease of $87.3 million of
resident fees compared to the prior year period. The decrease in resident fees
was partially offset by a 10.4% increase in same community RevPAR, comprised of
a 420 basis point increase in same community weighted average occupancy and a
4.2% increase in same community RevPOR. Management fee revenue decreased $1.7
million primarily due to the transition of management agreements on 12 net
communities since the beginning of the prior year period.
During the three months ended June 30, 2022 and 2021, we recognized $8.4 million
and $1.3 million , respectively, of government grants and employee retention
credits as other operating income based on our estimates of our satisfaction of
the conditions of the grants and credits during the period.
The decrease in facility operating expense was primarily attributable to
deconsolidation of results of the Health Care Services segment effective July 1,
2021 , which resulted in an $84.4 million decrease in facility operating
expenses. The decrease in facility operating expense was partially offset by an
11.8% increase in same community facility operating expense, including a $40.6
million , or 14.0%, increase in our same community labor expense primarily
resulting from an increase in the use of contract labor and overtime as well as
merit and market wage rate adjustments. Additionally, an increase in food costs
due to increased occupancy and higher prices during the period and an increase
in repairs and maintenance costs contributed to the increase in our same
community facility operating expense. Facility operating expense for the three
months ended June 30, 2022 and 2021 includes $1.9 million and $9.7 million ,
respectively, of incremental direct costs to respond to the COVID-19 pandemic.
The increase in net loss was primarily attributable to a decrease in equity in
earnings of unconsolidated ventures compared to the prior year period, partially
offset by a decrease in general and administrative expense compared to the prior
year period and the net impact of the revenue, other operating income, and
facility operating expense factors previously discussed.
The increase in Adjusted EBITDA was primarily attributable to a decrease in
general and administrative expense compared to the prior year period as a result
of the sale of 80% of our equity in our Health Care Services segment and a
decrease in estimated incentive compensation costs, as well as the net impact of
the revenue, other operating income, and facility operating expense factors
previously discussed.
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--------------------------------------------------------------------------------Operating Results - Senior Housing Segments
The following table summarizes the operating results and data of our three senior housing segments (Independent Living, Assisted Living andMemory Care , and CCRCs) on a combined basis for the three months endedJune 30, 2022 and 2021, including operating results and data on a same community basis. See management's discussion and analysis of the operating results on an individual segment basis on the following pages. Three Months Ended June 30, Increase (Decrease) (in thousands, except communities, units, occupancy, RevPAR, and RevPOR) 2022 2021 Amount Percent Resident fees$ 640,388 $ 586,665 $ 53,723 9.2 % Other operating income$ 8,411 $ 786 $ 7,625 NM Facility operating expense$ 513,664 $ 466,424 $ 47,240 10.1 % Number of communities (period end) 641 648 (7) (1.1) % Total average units 52,368 52,911 (543) (1.0) % RevPAR$ 4,071 $ 3,692 $ 379 10.3 % Occupancy rate (weighted average) 74.6 % 70.5 % 410 bps n/a RevPOR$ 5,459 $ 5,237 $ 222 4.2 % Same Community Operating Results and Data Resident fees$ 617,730 $ 559,667 $ 58,063 10.4 % Other operating income$ 8,015 $ 763 $ 7,252 NM Facility operating expense$ 492,939 $ 440,870 $ 52,069 11.8 % Number of communities 633 633 - - Total average units 50,594 50,589 5 - RevPAR$ 4,070 $ 3,688 $ 382 10.4 % Occupancy rate (weighted average) 74.6 % 70.4 % 420 bps n/a RevPOR$ 5,456 $ 5,236 $ 220 4.2 % 26
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Independent Living Segment
The following table summarizes the operating results and data for our
Independent Living segment for the three months ended
Three Months Ended
June 30, Increase (Decrease)
(in thousands, except communities, units,
occupancy, RevPAR, and RevPOR) 2022 2021 Amount Percent
Resident fees $ 125,578 $ 118,005 $ 7,573 6.4 %
Other operating income $ 1,159 $ 111 $ 1,048 NM
Facility operating expense $ 88,028 $ 82,824 $ 5,204 6.3 %
Number of communities (period end) 68 68 - -
Total average units 12,569 12,552 17 0.1 %
RevPAR $ 3,330 $ 3,134 $ 196 6.3 %
Occupancy rate (weighted average) 76.0 % 73.5 % 250 bps n/a
RevPOR $ 4,380 $ 4,266 $ 114 2.7 %
Same Community Operating Results and Data
Resident fees $ 123,890 $ 116,715 $ 7,175 6.1 %
Other operating income $ 1,146 $ 111 $ 1,035 NM
Facility operating expense $ 86,879 $ 81,773 $ 5,106 6.2 %
Number of communities 67 67 - -
Total average units 12,379 12,376 3 -
RevPAR $ 3,336 $ 3,144 $ 192 6.1 %
Occupancy rate (weighted average) 75.9 % 73.4 % 250 bps n/a
RevPOR $ 4,393 $ 4,285 $ 108 2.5 %
The increase in the segment's resident fees was primarily attributable to an
increase in the segment's same community RevPAR, comprised of a 250 basis point
increase in same community weighted average occupancy and a 2.5% increase in
same community RevPOR. The increase in the segment's same community weighted
average occupancy primarily reflects the impact of our execution on key
initiatives to rebuild occupancy lost due to the pandemic. The increase in the
segment's same community RevPOR was primarily the result of in-place rate
increases.
The increase in the segment's facility operating expense was primarily
attributable to an increase in the segment's same community facility operating
expense, including a $2.8 million , or 5.7%, increase in the segment's same
community labor expense primarily resulting from an increase in the use of
contract labor and overtime as well as merit and market wage rate adjustments.
The segment's facility operating expense for the three months ended June 30,
2022 and 2021 includes $0.3 million and $1.4 million , respectively, of
incremental direct costs to respond to the COVID-19 pandemic.
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--------------------------------------------------------------------------------Assisted Living and Memory Care Segment
The following table summarizes the operating results and data for our Assisted
Living and
Three Months Ended
June 30, Increase (Decrease)
(in thousands, except communities, units,
occupancy, RevPAR, and RevPOR) 2022 2021 Amount Percent
Resident fees $ 434,454 $ 391,718 $ 42,736 10.9 %
Other operating income $ 6,412 $ 629 $ 5,783 NM
Facility operating expense $ 353,278 $ 315,285 $ 37,993 12.1 %
Number of communities (period end) 554 560 (6) (1.1) %
Total average units 34,598 35,018 (420) (1.2) %
RevPAR $ 4,183 $ 3,728 $ 455 12.2 %
Occupancy rate (weighted average) 74.2 % 69.5 % 470 bps n/a
RevPOR $ 5,636 $ 5,365 $ 271 5.1 %
Same Community Operating Results and Data
Resident fees $ 429,970 $ 384,404 $ 45,566 11.9 %
Other operating income $ 6,291 $ 609 $ 5,682 NM
Facility operating expense $ 349,423 $ 308,097 $ 41,326 13.4 %
Number of communities 551 551 - -
Total average units 34,240 34,238 2 -
RevPAR $ 4,186 $ 3,742 $ 444 11.9 %
Occupancy rate (weighted average) 74.2 % 69.4 % 480 bps n/a
RevPOR $ 5,642 $ 5,390 $ 252 4.7 %
The increase in the segment's resident fees was primarily attributable to an
increase in the segment's same community RevPAR, comprised of a 480 basis point
increase in same community weighted average occupancy and a 4.7% increase in
same community RevPOR. The increase in the segment's same community weighted
average occupancy primarily reflects the impact of our execution on key
initiatives to rebuild occupancy lost due to the pandemic. The increase in the
segment's same community RevPOR was primarily the result of in-place rate
increases. The increase in the segment's resident fees was partially offset by
the disposition of eight communities (653 units) since the beginning of the
prior year period, which resulted in $3.3 million less in resident fees during
the three months ended June 30, 2022 compared to the prior year period.
The increase in the segment's facility operating expense was primarily
attributable to an increase in the segment's same community facility operating
expense, including a $33.5 million , or 16.2%, increase in the segment's same
community labor expense primarily resulting from merit and market wage rate
adjustments, an increase in the use of contract labor and overtime, and an
increase in hours worked due to increased occupancy during the period.
Additionally, an increase in food costs due to increased occupancy and higher
prices during the period and an increase in repairs and maintenance costs
contributed to the increase in the segment's same community facility operating
expense. The increase in the segment's facility operating expense was partially
offset by the disposition of communities since the beginning of the prior year
period, which resulted in $3.2 million less in facility operating expense during
the three months ended June 30, 2022 compared to the prior year period. The
segment's facility operating expense for the three months ended June 30, 2022
and 2021 includes $1.3 million and $6.1 million , respectively, of incremental
direct costs to respond to the COVID-19 pandemic.
28--------------------------------------------------------------------------------
CCRCs Segment
The following table summarizes the operating results and data for our CCRCs
segment for the three months ended
Three Months Ended
June 30, Increase (Decrease)
(in thousands, except communities, units,
occupancy, RevPAR, and RevPOR) 2022 2021 Amount Percent
Resident fees $ 80,356 $ 76,942 $ 3,414 4.4 %
Other operating income $ 840 $ 46 $ 794 NM
Facility operating expense $ 72,358 $ 68,315 $ 4,043 5.9 %
Number of communities (period end) 19 20 (1) (5.0) %
Total average units 5,201 5,341 (140) (2.6) %
RevPAR $ 5,115 $ 4,770 $ 345 7.2 %
Occupancy rate (weighted average) 73.4 % 70.2 % 320 bps n/a
RevPOR $ 6,970 $ 6,790 $ 180 2.7 %
Same Community Operating Results and Data
Resident fees $ 63,870 $ 58,548 $ 5,322 9.1 %
Other operating income $ 578 $ 43 $ 535 NM
Facility operating expense $ 56,637 $ 51,000 $ 5,637 11.1 %
Number of communities 15 15 - -
Total average units 3,975 3,975 - -
RevPAR $ 5,356 $ 4,910 $ 446 9.1 %
Occupancy rate (weighted average) 73.9 % 69.9 % 400 bps n/a
RevPOR $ 7,246 $ 7,028 $ 218 3.1 %
The increase in the segment's resident fees was primarily attributable to an
increase in the segment's same community RevPAR, comprised of a 400 basis point
increase in same community weighted average occupancy and a 3.1% increase in
same community RevPOR. The increase in the segment's same community weighted
average occupancy primarily reflects the impact of our execution on key
initiatives to rebuild occupancy lost due to the pandemic. The increase in the
segment's same community RevPOR was primarily the result of in-place rate
increases. The increase in the segment's resident fees was partially offset by
the disposition of one community (120 units) since the beginning of the prior
year period, which resulted in $2.5 million less in resident fees during the
three months ended June 30, 2022 compared to the prior year period.
The increase in the segment's facility operating expense was primarily
attributable to an increase in the segment's same community facility operating
expense, including a $4.3 million , or 12.3%, increase in the segment's same
community labor expense primarily resulting from an increase in the use of
contract labor and overtime as well as merit and market wage rate adjustments.
The increase in the segment's facility operating expense was partially offset by
the disposition of one community since the beginning of the prior year period,
which resulted in $2.6 million less in facility operating expense during the
three months ended June 30, 2022 compared to the prior year period. The
segment's facility operating expense for the three months ended June 30, 2022
and 2021 includes $0.3 million and $1.4 million , respectively, of incremental
direct costs to respond to the COVID-19 pandemic.
29--------------------------------------------------------------------------------
Operating Results - Other Income and Expense Items
The following table summarizes other income and expense items in our operating
results for the three months ended
Three Months Ended
June 30, Increase (Decrease)
(in thousands) 2022 2021 Amount Percent
Management fees $ 3,329 $ 4,998 $ (1,669) (33.4) %
Reimbursed costs incurred on behalf of
managed communities 37,388 43,008 (5,620) (13.1) %
Costs incurred on behalf of managed
communities 37,388 43,008 (5,620) (13.1) %
General and administrative expense 41,752 52,400 (10,648) (20.3) %
Facility operating lease expense 41,538 43,864 (2,326) (5.3) %
Depreciation and amortization 86,623 83,591 3,032 3.6 %
Asset impairment 2,599 2,078 521 25.1 %
Interest income 778 341 437 128.2 %
Interest expense 48,234 49,057 (823) (1.7) %
Equity in earnings (loss) of
unconsolidated ventures (2,439) 13,946 (16,385) NM
Gain (loss) on sale of assets, net 961 (79) 1,040 NM
Other non-operating income (loss) (111) 2,948 (3,059) NM
Benefit (provision) for income taxes (1,190) 792 (1,982) NM
Management Fees. The decrease in management fees was primarily attributable to
the transition of management arrangements on 12 net communities since the
beginning of the prior year period, generally for management arrangements on
certain former unconsolidated ventures in which we sold our interest and interim
management arrangements on formerly leased communities.
Reimbursed Costs Incurred on Behalf of Managed Communities and Costs Incurred on
Behalf of Managed Communities. The decrease in reimbursed costs and costs
incurred on behalf of managed communities was primarily attributable to
terminations of management agreements subsequent to the beginning of the prior
year period.
General and Administrative Expense. The decrease in general and administrative
expense was primarily attributable to decreases in compensation costs as a
result of reductions in our corporate headcount related to the HCS Sale,
estimated incentive compensation costs, and non-cash stock-based compensation
expense. General and administrative expense includes transaction and
organizational restructuring costs of $0.2 million and $0.7 million for the
three months ended June 30, 2022 and 2021, respectively. Transaction costs
include those directly related to acquisition, disposition, financing and
leasing activity, and are primarily comprised of legal, finance, consulting,
professional fees, and other third-party costs. Organizational restructuring
costs include those related to our efforts to reduce general and administrative
expense and our senior leadership changes, including severance costs.
Facility Operating Lease Expense. The decrease in facility operating lease
expense was primarily due to expense reductions for lease incentives received
for capital expenditures since the beginning of the prior year period, expense
reductions subsequent to the recognition of impairment of operating lease
right-of-use assets since the beginning of the prior year period, and lease
termination activity since the beginning of the prior year period.
Depreciation and Amortization. The increase in depreciation and amortization
expense was primarily due to the completion of community renovations, apartment
upgrades, and other major building infrastructure projects for leased
communities since the beginning of the prior year period.
Asset Impairment. During the three months ended June 30, 2022 and 2021, we
recorded $2.6 million and $2.1 million , respectively, of non-cash impairment
charges, primarily for certain leased communities with decreased occupancy and
future cash flow estimates as a result of the continuing impacts of the COVID-19
pandemic.
30-------------------------------------------------------------------------------- Interest Expense. The decrease in interest expense was primarily due to increases in the fair value of interest rate derivatives, reflecting the impact of increases in forward interest rates. Based upon our estimates of variable interest rates we expect debt interest expense to increase approximately$15.0 million for the full year 2022 compared to 2021. Equity in Earnings (Loss) ofUnconsolidated Ventures . The change in equity in earnings (loss) of unconsolidated ventures was primarily due to the gain on sale of assets recognized by our unconsolidated entrance fee venture for the sale of the two remaining entry fee CCRCs during the prior year period. Benefit (Provision) for Income Taxes. The difference between our effective tax rate for the three months endedJune 30, 2022 and 2021 was due to the increase in the net deferred tax expense resulting from a valuation allowance recorded in excess of the benefit recorded on operational losses for the three months endedJune 30, 2022 . We recorded an aggregate deferred federal, state, and local tax benefit of$20.6 million , which was offset by an increase in the valuation allowance of$21.4 million in the three months endedJune 30, 2022 . We recorded an aggregate deferred federal, state, and local tax benefit of$20.8 million as a result of the operating loss for the three months endedJune 30, 2021 , which was offset by an increase in the valuation allowance of$19.8 million . We evaluate our 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. Our valuation allowance as ofJune 30, 2022 andDecember 31, 2021 was$412.0 million and$368.0 million , respectively.
Comparison of Six Months Ended
Summary Operating Results
The following table summarizes our overall operating results for the six months
ended
Six Months Ended
June 30, Increase (Decrease)
(in thousands) 2022 2021 Amount Percent
Total resident fees and management fees
revenue $ 1,284,020 $ 1,351,892 $ (67,872) (5.0) %
Other operating income 8,787 12,043 (3,256) (27.0) %
Facility operating expense 1,026,428 1,107,158 (80,730) (7.3) %
Net income (loss) (184,315) (191,907) 7,592 4.0 %
Adjusted EBITDA 87,890 68,045 19,845 29.2 %
The decrease in total resident fees and management fees revenue was primarily
attributable to deconsolidation of results of the Health Care Services segment
effective July 1, 2021 , which resulted in a decrease of $174.2 million of
resident fees compared to the prior year period. The decrease in resident fees
was partially offset by a 10.6% increase in same community RevPAR, comprised of
a 400 basis point increase in same community weighted average occupancy and a
4.6% increase in same community RevPOR. Management fee revenue decreased $6.9
million primarily due to the transition of management agreements on 42 net
communities since the beginning of the prior year period.
During the six months ended June 30, 2022 and 2021, we recognized $8.8 million
and $12.0 million , respectively, of government grants and employee retention
credits as other operating income based on our estimates of our satisfaction of
the conditions of the grants and credits during the period.
The decrease in facility operating expense was primarily attributable to
deconsolidation of results of the Health Care Services segment effective July 1,
2021 , which resulted in a $171.5 million decrease in facility operating
expenses. The decrease in facility operating expense was partially offset by an
11.3% increase in same community facility operating expense, including a $79.4
million , or 13.6%, increase in our same community labor expense primarily
resulting from an increase in the use of contract labor and overtime as well as
merit and market wage rate adjustments, partially offset by a decrease in
incremental direct labor costs to respond to the COVID-19 pandemic.
Additionally, an increase in food costs due to increased occupancy and higher
prices during the period and an increase in repairs and maintenance costs
contributed to the increase in our same community facility operating expense.
Facility operating expense for the six months ended June 30, 2022 and 2021
includes $12.3 million and $37.1 million , respectively, of incremental direct
costs to respond to the COVID-19 pandemic.
31
--------------------------------------------------------------------------------
The decrease in net loss was primarily attributable to decreases in general and
administrative expense, interest expense, and facility operating lease expense
compared to the prior year period, as well as the net impact of the revenue,
other operating income, and facility operating expense factors previously
discussed. These changes were partially offset by a decrease in equity in
earnings of unconsolidated ventures compared to the prior year period.
The increase in Adjusted EBITDA was primarily attributable to a decrease in
general and administrative expense compared to the prior year period as a result
of the sale of 80% of our equity in our Health Care Services segment and a
decrease in estimated incentive compensation costs, as well as the net impact of
the revenue, other operating income, and facility operating expense factors
previously discussed.
Operating Results - Senior Housing Segments
The following table summarizes the operating results and data of our three senior housing segments (Independent Living, Assisted Living andMemory Care , and CCRCs) on a combined basis for the six months endedJune 30, 2022 and 2021 including operating results and data on a same community basis. See management's discussion and analysis of the operating results on an individual segment basis on the following pages. Six Months Ended June 30, Increase (Decrease) (in thousands, except communities, units, occupancy, RevPAR, and RevPOR) 2022 2021 Amount Percent Resident fees$ 1,277,362 $ 1,164,164 $ 113,198 9.7 % Other operating income$ 8,787 $ 8,938 $ (151) (1.7) % Facility operating expense$ 1,026,428 $ 935,705 $ 90,723 9.7 % Number of communities (period end) 641 648 (7) (1.1) % Total average units 52,478 52,941 (463) (0.9) % RevPAR$ 4,052 $ 3,662 $ 390 10.6 % Occupancy rate (weighted average) 74.0 % 70.0 % 400 bps n/a RevPOR$ 5,476 $ 5,228 $ 248 4.7 % Same Community Operating Results and Data Resident fees$ 1,230,332 $ 1,111,771 $ 118,561 10.7 % Other operating income$ 8,373 $ 8,106 $ 267 3.3 % Facility operating expense$ 984,265 $ 884,495 $ 99,770 11.3 % Number of communities 633 633 - - Total average units 50,594 50,590 4 - RevPAR$ 4,053 $ 3,663 $ 390 10.6 % Occupancy rate (weighted average) 74.0 % 70.0 % 400 bps n/a RevPOR$ 5,477 $ 5,234 $ 243 4.6 % 32
--------------------------------------------------------------------------------
Independent Living Segment
The following table summarizes the operating results and data for our
Independent Living segment for the six months ended
Six Months Ended
June 30, Increase (Decrease)
(in thousands, except communities, units,
occupancy, RevPAR, and RevPOR) 2022 2021 Amount Percent
Resident fees $ 249,982 $ 236,787 $ 13,195 5.6 %
Other operating income $ 1,161 $ 1,475 $ (314) (21.3) %
Facility operating expense $ 174,750 $ 165,641 $ 9,109 5.5 %
Number of communities (period end) 68 68 - -
Total average units 12,569 12,546 23 0.2 %
RevPAR $ 3,315 $ 3,146 $ 169 5.4 %
Occupancy rate (weighted average) 75.3 % 73.5 % 180 bps n/a
RevPOR $ 4,401 $ 4,278 $ 123 2.9 %
Same Community Operating Results and Data
Resident fees $ 246,736 $ 234,287 $ 12,449 5.3 %
Other operating income $ 1,148 $ 1,456 $ (308) (21.2) %
Facility operating expense $ 172,564 $ 163,640 $ 8,924 5.5 %
Number of communities 67 67 - -
Total average units 12,379 12,375 4 -
RevPAR $ 3,322 $ 3,155 $ 167 5.3 %
Occupancy rate (weighted average) 75.3 % 73.4 % 190 bps n/a
RevPOR $ 4,413 $ 4,298 $ 115 2.7 %
The increase in the segment's resident fees was primarily attributable to an
increase in the segment's same community RevPAR, comprised of a 2.7% increase in
same community RevPOR and a 190 basis point increase in same community weighted
average occupancy. The increase in the segment's same community RevPOR was
primarily the result of in-place rent increases. The increase in the segment's
same community weighted average occupancy primarily reflects the impact of our
execution on key initiatives to rebuild occupancy lost due to the pandemic.
The increase in the segment's facility operating expense was primarily
attributable to an increase in the segment's same community facility operating
expense, including a $4.9 million , or 4.9%, increase in the segment's same
community labor expense primarily resulting from an increase in the use of
contract labor and overtime as well as merit and market wage rate adjustments,
partially offset by a decrease in incremental direct labor costs to respond to
the COVID-19 pandemic. The segment's facility operating expense for the six
months ended June 30, 2022 and 2021 includes $1.6 million and $4.5 million ,
respectively, of incremental direct costs to respond to the COVID-19 pandemic.
33
--------------------------------------------------------------------------------Assisted Living and Memory Care Segment
The following table summarizes the operating results and data for our Assisted Living andMemory Care segment for the six months endedJune 30, 2022 and 2021, including operating results and data on a same community basis. Six Months Ended June 30, Increase (Decrease) (in thousands, except communities, units, occupancy, RevPAR, and RevPOR) 2022 2021 Amount Percent Resident fees$ 866,586 $ 778,656 $ 87,930 11.3 % Other operating income$ 6,768 $ 5,733 $ 1,035 18.1 % Facility operating expense$ 708,903 $ 635,894 $ 73,009 11.5 % Number of communities (period end) 554 560 (6) (1.1) % Total average units 34,708 35,063 (355) (1.0) % RevPAR$ 4,159 $ 3,700 $ 459 12.4 % Occupancy rate (weighted average) 73.6 % 68.9 % 470 bps n/a RevPOR$ 5,650 $ 5,371 $ 279 5.2 % Same Community Operating Results and Data Resident fees$ 855,864 $ 763,363 $ 92,501 12.1 % Other operating income$ 6,647 $ 5,527 $ 1,120 20.3 % Facility operating expense$ 699,803 $ 619,783 $ 80,020 12.9 % Number of communities 551 551 - - Total average units 34,240 34,240 - - RevPAR$ 4,166 $ 3,716 $ 450 12.1 % Occupancy rate (weighted average) 73.6 % 68.9 % 470 bps n/a RevPOR$ 5,663 $ 5,397 $ 266 4.9 % The increase in the segment's resident fees was primarily attributable to an increase in the segment's same community RevPAR, comprised of a 470 basis point increase in same community weighted average occupancy and a 4.9% increase in same community RevPOR. The increase in the segment's same community weighted average occupancy primarily reflects the impact of our execution on key initiatives to rebuild occupancy lost due to the pandemic. The increase in the segment's same community RevPOR was primarily the result of in-place rent increases. The increase in the segment's resident fees was partially offset by the disposition of nine communities (695 units) since the beginning of the prior year period, which resulted in$5.6 million less in resident fees during the six months endedJune 30, 2022 compared to the prior year period. The increase in the segment's facility operating expense was primarily attributable to an increase in the segment's same community facility operating expense, including a$65.6 million , or 15.8%, increase in the segment's same community labor expense primarily resulting from an increase in the use of contract labor and overtime as well as merit and market wage rate adjustments, partially offset by a decrease in incremental direct labor costs to respond to the COVID-19 pandemic. Additionally, an increase in food costs due to increased occupancy and higher prices during the period and an increase in repairs and maintenance costs contributed to the increase in the segment's same community facility operating expense. The increase in the segment's facility operating expense was partially offset by the disposition of communities since the beginning of the prior year period, which resulted in$5.7 million less in facility operating expense during the six months endedJune 30, 2022 compared to the prior year period. The segment's facility operating expense for the six months endedJune 30, 2022 and 2021 includes$8.9 million and$25.0 million , respectively, of incremental direct costs to respond to the COVID-19 pandemic. 34 --------------------------------------------------------------------------------
CCRCs Segment
The following table summarizes the operating results and data for our CCRCs
segment for the six months ended
Six Months Ended
June 30, Increase (Decrease)
(in thousands, except communities, units,
occupancy, RevPAR, and RevPOR) 2022 2021 Amount Percent
Resident fees $ 160,794 $ 148,721 $ 12,073 8.1 %
Other operating income $ 858 $ 1,730 $ (872) (50.4) %
Facility operating expense $ 142,775 $ 134,170 $ 8,605 6.4 %
Number of communities (period end) 19 20 (1) (5.0) %
Total average units 5,201 5,332 (131) (2.5) %
RevPAR $ 5,112 $ 4,621 $ 491 10.6 %
Occupancy rate (weighted average) 73.3 % 69.3 % 400 bps n/a
RevPOR $ 6,973 $ 6,665 $ 308 4.6 %
Same Community Operating Results and Data
Resident fees $ 127,732 $ 114,121 $ 13,611 11.9 %
Other operating income $ 578 $ 1,123 $ (545) (48.5) %
Facility operating expense $ 111,898 $ 101,072 $ 10,826 10.7 %
Number of communities 15 15 - -
Total average units 3,975 3,975 - -
RevPAR $ 5,356 $ 4,785 $ 571 11.9 %
Occupancy rate (weighted average) 73.8 % 69.0 % 480 bps n/a
RevPOR $ 7,256 $ 6,931 $ 325 4.7 %
The increase in the segment's resident fees was primarily attributable to an
increase in the segment's same community RevPAR, comprised of a 480 basis point
increase in same community weighted average occupancy and a 4.7% increase in
same community RevPOR. The increase in the segment's same community weighted
average occupancy primarily reflects the impact of our execution on key
initiatives to rebuild occupancy lost due to the pandemic. The increase in the
segment's same community RevPOR was primarily the result of in-place rent
increases and an occupancy mix shift to more skilled nursing services within the
segment. The increase in the segment's resident fees was partially offset by the
disposition of one community (120 units) since the beginning of the prior year
period, which resulted in $4.1 million less in resident fees during the six
months ended June 30, 2022 compared to the prior year period.
The increase in the segment's facility operating expense was primarily
attributable to an increase in the segment's same community facility operating
expense, including an $8.9 million , or 13.0%, increase in the segment's same
community labor expense primarily resulting from an increase in the use of
contract labor and overtime as well as merit and market wage rate adjustments.
The increase in the segment's facility operating expense was partially offset by
the disposition of communities since the beginning of the prior year period,
which resulted in $4.7 million less in facility operating expense during the six
months ended June 30, 2022 compared to the prior year period. The segment's
facility operating expense for the six months ended June 30, 2022 and 2021
includes $1.8 million and $5.4 million , respectively, of incremental direct
costs to respond to the COVID-19 pandemic.
35
--------------------------------------------------------------------------------Operating Results - Other Income and Expense Items
The following table summarizes other income and expense items in our operating
results for the six months ended
Six Months Ended
June 30, Increase (Decrease)
(in thousands) 2022 2021 Amount Percent
Management fees $ 6,658 $ 13,564 $ (6,906) (50.9) %
Reimbursed costs incurred on behalf of
managed communities 74,529 108,802 (34,273) (31.5) %
Costs incurred on behalf of managed
communities 74,529 108,802 (34,273) (31.5) %
General and administrative expense 86,878 102,343 (15,465) (15.1) %
Facility operating lease expense 83,102 88,282 (5,180) (5.9) %
Depreciation and amortization 172,307 167,482 4,825 2.9 %
Asset impairment 11,674 12,755 (1,081) (8.5) %
Interest income 873 762 111 14.6 %
Interest expense 91,588 97,664 (6,076) (6.2) %
Equity in earnings (loss) of
unconsolidated ventures (7,333) 13,415 (20,748) NM
Gain (loss) on sale of assets, net 667 1,033 (366) (35.4) %
Other non-operating income (loss) (138) 4,592 (4,730) NM
Benefit (provision) for income taxes 786 40 746 NM
Management Fees. The decrease in management fees was primarily attributable to
the transition of management arrangements on 42 net communities since the
beginning of the prior year period, generally for management arrangements on
certain former unconsolidated ventures in which we sold our interest and interim
management arrangements on formerly leased communities.
Reimbursed Costs Incurred on Behalf of Managed Communities and Costs Incurred on
Behalf of Managed Communities. The decrease in reimbursed costs and costs
incurred on behalf of managed communities was primarily attributable to
terminations of management agreements subsequent to the beginning of the prior
year period.
General and Administrative Expense. The decrease in general and administrative
expense was primarily attributable to decreases in compensation costs as a
result of reductions in our corporate headcount related to the HCS Sale,
estimated incentive compensation costs, transaction and organizational
restructuring costs, and non-cash stock-based compensation expense. General and
administrative expense includes transaction and organizational restructuring
costs of $0.6 million and $2.6 million for the six months ended June 30, 2022
and 2021, respectively. Transaction costs include those directly related to
acquisition, disposition, financing and leasing activity, and are primarily
comprised of legal, finance, consulting, professional fees, and other
third-party costs. Organizational restructuring costs include those related to
our efforts to reduce general and administrative expense and our senior
leadership changes, including severance costs.
Facility Operating Lease Expense. The decrease in facility operating lease
expense was primarily due to expense reductions for lease incentives received
for capital expenditures since the beginning of the prior year period, expense
reductions subsequent to the recognition of impairment of operating lease
right-of-use assets since the beginning of the prior year period, and lease
termination activity since the beginning of the prior year period.
Depreciation and Amortization. The increase in depreciation and amortization
expense was primarily due to the completion of community renovations, apartment
upgrades, and other major building infrastructure projects for leased
communities since the beginning of the prior year period.
Asset Impairment. During the six months ended June 30, 2022 and 2021, we
recorded $11.7 million and $12.8 million , respectively, of non-cash impairment
charges, primarily for certain leased communities with decreased occupancy and
future cash flow estimates as a result of the continuing impacts of the COVID-19
pandemic.
Interest Expense. The decrease in interest expense was primarily due to
increases in the fair value of interest rate derivatives, reflecting the impact
of increases in forward interest rates, and a decrease in interest expense on
long-term debt, reflecting the
36
--------------------------------------------------------------------------------
impact of a lower weighted average interest rate for our fixed interest rate
debt obligations as a result of financing activities since the beginning of the
prior year period. Based upon our estimates of variable interest rates we expect
debt interest expense to increase approximately $15.0 million for the full year
2022 compared to 2021.
Equity in Earnings (Loss) of Unconsolidated Ventures . The change in equity in
earnings (loss) of unconsolidated ventures was primarily due to the gain on sale
of assets recognized by our unconsolidated entrance fee venture for the sale of
the two remaining entry fee CCRCs during the prior year period. The equity in
loss of unconsolidated ventures for the current year period was primarily for
our share of the operating results of the new HCS Venture, including the impact
of organizational restructuring costs for adjustments to its operational
structure.
Benefit (Provision) for Income Taxes. The difference between our effective tax
rate for the six months ended June 30, 2022 and 2021 was due to the increase in
the net deferred tax benefit recognized on operational losses and an increase in
the tax benefit recognized on the vesting of restricted stock units and
restricted stock awards.
We recorded an aggregate deferred federal, state, and local tax benefit of $45.5
million , which was offset by an increase in the valuation allowance of $44.0
million in the six months ended June 30, 2022 . We recorded an aggregate deferred
federal, state, and local tax benefit of $46.0 million , which was offset by an
increase in the valuation allowance of $45.3 million for the six months ended
June 30, 2021 .
Liquidity and Capital Resources
This section includes the non-GAAP liquidity measure Adjusted Free Cash Flow. See "Non-GAAP Financial Measures" below for our definition of the measure and other important information regarding such measure, including reconciliations to the most comparable GAAP measure.
Liquidity
The following is a summary of cash flows from operating, investing, and financing activities, as reflected in the condensed consolidated statements of cash flows, and our Adjusted Free Cash Flow.
Six Months Ended
June 30, Increase (Decrease)
(in thousands) 2022 2021 Amount Percent
Net cash provided by (used in)
operating activities $ (11,678) $ (20,447) $ (8,769) (42.9) %
Net cash provided by (used in)
investing activities (80,001) (2,245) 77,756 NM
Net cash provided by (used in)
financing activities (18,093) (56,554) (38,461) (68.0) %
Net increase (decrease) in cash, cash
equivalents, and restricted cash (109,772) (79,246) 30,526 38.5 %
Cash, cash equivalents, and restricted
cash at beginning of period 438,314 465,148 (26,834) (5.8) %
Cash, cash equivalents, and restricted
cash at end of period $ 328,542 $ 385,902 $ (57,360) (14.9) %
Adjusted Free Cash Flow $ (101,956) $ (105,421) $ 3,465 3.3 %
The decrease in net cash used in operating activities was attributable primarily
to an increase in same community revenue and a decrease in general and
administrative expense compared to the prior year period. These changes were
partially offset by an increase in same community facility operating expense and
a decrease in lessor reimbursements for capital expenditures for operating
leases.
The increase in net cash used in investing activities was primarily attributable
to an $85.5 million increase in purchases of marketable securities, a $17.3
million increase in cash paid for capital expenditures, a $6.0 million increase
in cash paid for the acquisition of a previously leased community, and a $3.9
million decrease in net proceeds from the sale of assets compared to the prior
year period. These changes were partially offset by a $29.5 million increase in
proceeds from sales and maturities of marketable securities and a $5.2 million
decrease in investments in unconsolidated ventures compared to the prior year
period.
The decrease in net cash used in financing activities was primarily attributable
to a $29.9 million decrease in repayment of debt and financing lease obligations
and an $8.3 million increase in debt proceeds compared to the prior year period.
37
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The change in Adjusted Free Cash Flow was primarily attributable to an increase
in same community revenue and a decrease in general and administrative expense
compared to the prior year period. These changes were partially offset by an
increase in same community facility operating expense compared to the prior year
period and a $21.8 million increase in non-development capital expenditures,
net.
Our principal sources of liquidity have historically been from:
•cash balances on hand, cash equivalents, and marketable securities; •cash flows from operations; •proceeds from our credit facilities; •funds generated through unconsolidated venture arrangements; •proceeds from mortgage financing or refinancing of various assets; •funds raised in the debt or equity markets; and •proceeds from the disposition of assets. Over the longer-term, we expect to continue to fund our business through these principal sources of liquidity. We also have received pandemic-related government relief, including cash grants and advanced Medicare payments, and we have elected to utilize the pandemic-related payroll tax deferral program.
Our liquidity requirements have historically arisen from:
•working capital; •operating costs such as labor costs, severance costs, general and administrative expense, and supply costs; •debt, interest, and lease payments; •acquisition consideration, lease termination and restructuring costs, and transaction and integration costs; •capital expenditures and improvements, including the expansion, repositioning, redeveloping, and major renovation of our current communities and the development of new communities; •cash collateral required to be posted in connection with our financial instruments and insurance programs; •purchases of common stock under our share repurchase authorizations; •other corporate initiatives (including integration, information systems, branding, and other strategic projects); and •prior to 2009, dividend payments.
Over the near-term, we expect that our liquidity requirements will primarily arise from:
•working capital; •operating costs such as labor costs, general and administrative expense, and supply costs, including those related to the COVID-19 pandemic; •debt, interest, and lease payments; •payment of deferred payroll taxes under the CARES Act; •acquisition consideration; •transaction costs and investment in our healthcare and wellness initiatives; •capital expenditures and improvements, including the expansion, renovation, redevelopment, and repositioning of our existing communities; •cash collateral required to be posted in connection with our financial instruments and insurance programs; and •other corporate initiatives (including information systems and other strategic projects). We are highly leveraged and have significant debt and lease obligations. As ofJune 30, 2022 , we have three principal corporate-level debt obligations and credit facilities: •$230.0 million principal amount of 2.00% convertible senior notes due 2026. •$80.0 million secured credit facility maturingJanuary 2024 , under which$72.6 million of letters of credit and no cash borrowings have been issued as ofJune 30, 2022 . •Separate secured letter of credit facility providing for up to$15.0 million of letters of credit as ofJune 30, 2022 , under which$13.9 million had been issued as of that date. As ofJune 30, 2022 , we had$3.8 billion of debt outstanding, at a weighted average interest rate of 3.98%. As of such date, 93.8%, or$3.6 billion , of our total debt obligations represented non-recourse property-level mortgage financings. As ofJune 30, 2022 ,$1.2 billion of our long-term debt is variable rate debt subject to interest rate cap agreements. The remaining$227.0 million of our long-term variable rate debt is not subject to any interest rate cap agreements. We are subject to market 38 --------------------------------------------------------------------------------
risks from changes in interest rates charged on our credit facilities and other variable rate indebtedness. Refer to "Item 3. Quantitative and Qualitative Disclosures About Market Risk" for further information on our interest rate risk.
As ofJune 30, 2022 , we had$1.3 billion of operating and financing lease obligations. For the twelve months endingJune 30, 2023 , we will be required to make approximately$275.4 million of cash lease payments in connection with our existing operating and financing leases. Total liquidity of$411.7 million as ofJune 30, 2022 included$238.8 million of unrestricted cash and cash equivalents (excluding restricted cash of$89.8 million ),$165.5 million of marketable securities, and$7.4 million of availability on our secured credit facility. Total liquidity as ofJune 30, 2022 decreased$125.1 million from total liquidity of$536.8 million as ofDecember 31, 2021 . The decrease was primarily attributable to negative$102.0 million of Adjusted Free Cash Flow and$19.3 million of payments of mortgage debt. As ofJune 30, 2022 , our current liabilities exceeded current assets by$266.5 million . Included in our current liabilities is$268.3 million of the current portion of long-term debt. Our current liabilities also include$177.5 million of the current portion of operating and financing lease obligations, for which the associated right-of-use assets are excluded from current assets on our condensed consolidated balance sheets. We currently estimate our historical principal sources of liquidity, primarily our cash flows from operations, together with cash balances on hand, cash equivalents, and marketable securities will be sufficient to fund our liquidity needs for at least the next 12 months. We continue to seek opportunities to preserve and enhance our liquidity, including through increasing our RevPAR, maintaining expense discipline, continuing to refinance maturing debt, continuing to evaluate our capital structure and the state of debt and equity markets, and monetizing non-strategic or underperforming owned assets. There is no assurance that financing will continue to be available on terms consistent with our expectations or at all, or that our efforts will be successful in monetizing certain assets. Our actual liquidity and capital funding requirements depend on numerous factors, including our operating results, our actual level of capital expenditures, general economic conditions, and the cost of capital, as well as other factors described in "Item 1A. Risk Factors" in our Annual Report on Form 10-K for the year endedDecember 31, 2021 filed with theSEC onFebruary 15, 2022 . The amount of mortgage financing available for our communities is generally dependent on their appraised values and performance. In addition, our inability to satisfy underwriting criteria for individual communities may limit our access to our historical lending sources for such communities, including Fannie Mae and Freddie Mac. Due to lower operating performance of our communities, generally, resulting from the COVID-19 pandemic, during 2021 we sought and obtained non-agency mortgage financings to partially refinance maturing Freddie Mac and Fannie Mae indebtedness. Until our communities' performance recovers, we plan to refinance maturities using non-agency financing, and our loan proceeds from such financing may be insufficient to fully cover maturing mortgage indebtedness. As ofJune 30, 2022 , we have no remaining 2022 mortgage debt maturities and have$227.7 million of mortgage debt maturities due in 2023, which we plan to refinance. Our inability to obtain refinancing proceeds sufficient to cover 2023 and later maturing indebtedness could adversely impact our liquidity, and may cause us to seek additional alternative sources of financing, which may be less attractive or unavailable. We expect increases in market interest rates to increase our future borrowing costs for new financings obtained in the near-term. Shortfalls in cash flows from estimated operating results or other principal sources of liquidity may have an adverse impact on our ability to fund our planned capital expenditures, or to pursue any acquisition, investment, development, or potential lease restructuring opportunities that we identify, or to fund investments to support our strategy. In order to continue some of these activities at historical or planned levels, we may incur additional indebtedness or lease financing to provide additional funding. There can be no assurance that any such additional financing will be available or on terms that are acceptable to us.
Capital Expenditures
Our capital expenditures are comprised of community-level, corporate, and development capital expenditures. Community-level capital expenditures include recurring expenditures (routine maintenance of communities over$1,500 per occurrence and for unit turnovers over$500 per unit) and community renovations, apartment upgrades, and other major building infrastructure projects. Corporate capital expenditures include those for information technology systems and equipment, the expansion of our support platform and the remediation or replacement of assets as a result of casualty losses. Development capital expenditures include community expansions, major community redevelopment and repositioning projects, and the development of new communities. With our development capital expenditures program, we intend to expand, renovate, redevelop, and reposition certain of our communities where economically advantageous. Certain of our communities may benefit from additions and expansions or from adding a new level of service for residents to meet the evolving needs of our customers. These development projects include converting space from one level of care to another, reconfiguration of existing units, the addition of services that are not currently present, or physical plant modifications. 39 --------------------------------------------------------------------------------
The following table summarizes our capital expenditures for the six months ended
(in millions)
Community-level capital expenditures, net(1)
13.1
Non-development capital expenditures, net(2) 85.0 Development capital expenditures, net
2.7
Total capital expenditures, net $ 87.7 (1)Reflects the amount invested, net of lessor reimbursements of
(2)Amount is included in Adjusted Free Cash Flow.
In the aggregate, we expect our full-year 2022 non-development capital expenditures, net of anticipated lessor reimbursements, to be approximately$160.0 million . In addition, we expect our full-year 2022 development capital expenditures to be approximately$20.0 million , net of anticipated lessor reimbursements, and such projects include those for expansion, repositioning, redeveloping, and major renovation of selected existing senior living communities. We anticipate that our 2022 capital expenditures will be funded from cash on hand, cash equivalents, marketable securities, cash flows from operations, and reimbursements from lessors. Funding our planned capital expenditures, pursuing any acquisition, investment, development, or potential lease restructuring opportunities that we identify, or funding investments to support our strategy may require additional capital. We expect to continue to assess our financing alternatives periodically and access the capital markets opportunistically. If our existing resources are insufficient to satisfy our liquidity requirements, we may need to sell additional equity or debt securities. Any such sale of additional equity securities will dilute the percentage ownership of our existing stockholders, and we cannot be certain that additional public or private financing will be available in amounts or on terms acceptable to us, if at all. Any newly issued equity securities may have rights, preferences, or privileges senior to those of our common stock. If we are unable to raise additional funds or obtain them on terms acceptable to us, we may have to delay or abandon our plans.
Credit Facilities
OnDecember 11, 2020 , we entered into a revolving credit agreement withCapital One, National Association , as administrative agent and lender and the other lenders from time to time parties thereto. The agreement provides a commitment amount of up to$80.0 million which can be drawn in cash or as letters of credit. The agreement matures onJanuary 15, 2024 . Amounts drawn under the facility will bear interest at 30-day London Interbank Offer Rate ("LIBOR") plus an applicable margin which was 2.75% as ofJune 30, 2022 . Additionally, a quarterly commitment fee of 0.25% per annum was applicable on the unused portion of the facility as ofJune 30, 2022 . The revolving credit facility is currently secured by first priority mortgages and negative pledges on certain of our communities. Available capacity under the facility will vary from time to time based upon borrowing base calculations related to the appraised value and performance of the communities securing the credit facility and the variable interest rate of the credit facility. As ofJune 30, 2022 ,$72.6 million of letters of credit and no cash borrowings were outstanding under our$80.0 million secured credit facility and the facility had$7.4 million of availability. We also had a separate secured letter of credit facility providing up to$15.0 million of letters of credit as ofJune 30, 2022 under which$13.9 million had been issued as of that date.
Long-Term Leases
As ofJune 30, 2022 , we operated 295 communities under long-term leases (230 operating leases and 65 financing leases). The substantial majority of our lease arrangements are structured as master leases. Under a master lease, numerous communities are leased through an indivisible lease. We typically guarantee the performance and lease payment obligations of our subsidiary lessees under the master leases. Due to the nature of such master leases, it is difficult to restructure the composition of our leased portfolios or economic terms of the leases without the consent of the applicable landlord. In addition, an event of default related to an individual property or limited number of properties within a master lease portfolio may result in a default on the entire master lease portfolio. 40 -------------------------------------------------------------------------------- The leases relating to these communities are generally fixed rate leases with annual escalators that are either fixed or based upon changes in the consumer price index or leased property revenue. Approximately 89% of our community lease payments are subject to a weighted average maximum annual increase of 2.7% for community leases subject to fixed annual escalators or variable annual escalators based on the consumer price index subject to a cap. The remaining community lease payments are subject to variable annual escalators primarily based upon the change in the consumer price index. An additional 1% increase in the consumer price index would have resulted in additional cash lease payments of approximately$0.2 million for the twelve months endedJune 30, 2022 . We are responsible for all operating costs, including repairs, property taxes, and insurance. The lease terms generally provide for renewal or extension options from 5 to 20 years, and, in some instances, purchase options. The community leases contain other customary terms, which may include assignment and change of control restrictions, maintenance and capital expenditure obligations, termination provisions, and financial covenants, such as those requiring us to maintain prescribed minimum liquidity, net worth, and stockholders' equity levels and lease coverage ratios. Our lease documents generally contain non-financial covenants, such as those requiring us to comply with Medicare or Medicaid provider requirements and maintain insurance coverage. Certain leases contain cure provisions, which generally allow us to post an additional lease security deposit if the required covenant is not met. Certain of our master leases contain radius restrictions, which limit our ability to own, develop, or acquire new communities within a specified distance from certain existing communities covered by such agreements. These radius restrictions could negatively affect our ability to expand, develop, or acquire senior housing communities and operating companies. For the three and six months endedJune 30, 2022 , our cash lease payments for our operating leases were$51.4 million and$102.8 million , respectively, and for our financing leases were$17.6 million and$35.2 million , respectively. For the twelve months endingJune 30, 2023 , we will be required to make$275.4 million of cash lease payments in connection with our existing operating and financing leases. Debt and Lease Covenants Certain of our debt and lease documents contain restrictions and financial covenants, such as those requiring us to maintain prescribed minimum liquidity, net worth, and stockholders' equity levels and debt service and lease coverage ratios, and requiring us not to exceed prescribed leverage ratios, in each case on a consolidated, portfolio-wide, multi-community, single-community, and/or entity basis. Net worth is generally calculated as stockholders' equity as calculated in accordance with GAAP, and in certain circumstances, reduced by intangible assets or liabilities or increased by deferred gains from sale-leaseback transactions and deferred entrance fee revenue. The debt service and lease coverage ratios are generally calculated as revenues less operating expenses, including an implied management fee and a reserve for capital expenditures, divided by the debt (principal and interest) or lease payment. In addition, our debt and lease documents generally contain non-financial covenants, such as those requiring us to comply with Medicare or Medicaid provider requirements and maintain insurance coverage. Our failure to comply with applicable covenants could constitute an event of default under the applicable debt or lease documents. Many of our debt and lease documents contain cross-default provisions so that a default under one of these instruments could cause a default under other debt and lease documents (including documents with other lenders and lessors). Furthermore, our debt and leases are secured by our communities and, in certain cases, a guaranty by us and/or one or more of our subsidiaries. Therefore, if an event of default has occurred under any of our debt or lease documents, subject to cure provisions in certain instances, the respective lender or lessor would have the right to declare all the related outstanding amounts of indebtedness or cash lease obligations immediately due and payable, to foreclose on our mortgaged communities, to terminate our leasehold interests, to foreclose on other collateral securing the indebtedness and leases, to discontinue our operation of leased communities, and/or to pursue other remedies available to such lender or lessor. Further, an event of default could trigger cross-default provisions in our other debt and lease documents (including documents with other lenders or lessors). We cannot provide assurance that we would be able to pay the debt or lease obligations if they became due upon acceleration following an event of default.
As of
41
--------------------------------------------------------------------------------Non-GAAP Financial Measures
This Quarterly Report on Form 10-Q contains the financial measures Adjusted EBITDA and Adjusted Free Cash Flow, which are not calculated in accordance withU.S. generally accepted accounting principles ("GAAP"). Presentations of these non-GAAP financial measures are intended to aid investors in better understanding the factors and trends affecting our performance and liquidity. However, investors should not consider these non-GAAP financial measures as a substitute for financial measures determined in accordance with GAAP, including net income (loss), income (loss) from operations, or net cash provided by (used in) operating activities. We caution investors that amounts presented in accordance with our definitions of these non-GAAP financial measures may not be comparable to similar measures disclosed by other companies because not all companies calculate non-GAAP measures in the same manner. We urge investors to review the following reconciliations of these non-GAAP financial measures from the most comparable financial measures determined in accordance with GAAP.
Adjusted EBITDA
Adjusted EBITDA is a non-GAAP performance measure that we define as net income
(loss) excluding: benefit/provision for income taxes, non-operating
income/expense items, and depreciation and amortization; and further adjusted to
exclude income/expense associated with non-cash, non-operational, transactional,
cost reduction, or organizational restructuring items that management does not
consider as part of our underlying core operating performance and that
management believes impact the comparability of performance between periods. For
the periods presented herein, such other items include non-cash impairment
charges, gain/loss on facility operating lease termination, operating lease
expense adjustment, non-cash stock-based compensation expense, and transaction
and organizational restructuring costs. Transaction costs include those directly
related to acquisition, disposition, financing, and leasing activity, and are
primarily comprised of legal, finance, consulting, professional fees, and other
third-party costs. Organizational restructuring costs include those related to
our efforts to reduce general and administrative expense and our senior
leadership changes, including severance.
We believe that presentation of Adjusted EBITDA as a performance measure is
useful to investors because (i) it is one of the metrics used by our management
for budgeting and other planning purposes, to review our historic and
prospective core operating performance, and to make day-to-day operating
decisions; (ii) it provides an assessment of operational factors that management
can impact in the short-term, namely revenues and the controllable cost
structure of the organization, by eliminating items related to our financing and
capital structure and other items that management does not consider as part of
our underlying core operating performance and that management believes impact
the comparability of performance between periods; and (iii) we believe that this
measure is used by research analysts and investors to evaluate our operating
results and to value companies in our industry.
Adjusted EBITDA has material limitations as a performance measure, including:
(i) excluded interest and income tax are necessary to operate our business under
our current financing and capital structure; (ii) excluded depreciation,
amortization, and impairment charges may represent the wear and tear and/or
reduction in value of our communities, goodwill, and other assets and may be
indicative of future needs for capital expenditures; and (iii) we may incur
income/expense similar to those for which adjustments are made, such as
gain/loss on sale of assets, facility operating lease termination, or debt
modification and extinguishment, non-cash stock-based compensation expense, and
transaction and other costs, and such income/expense may significantly affect
our operating results.
42--------------------------------------------------------------------------------
The table below reconciles Adjusted EBITDA from net income (loss).
Three Months Ended Six Months Ended
June 30, June 30,
(in thousands) 2022 2021 2022 2021
Net income (loss) $ (84,283) $ (83,604) $ (184,315) $ (191,907)
Provision (benefit) for income taxes 1,190 (792) (786) (40)
Equity in (earnings) loss of unconsolidated
ventures 2,439 (13,946) 7,333 (13,415)
Loss (gain) on sale of assets, net (961) 79 (667) (1,033)
Other non-operating (income) loss 111 (2,948) 138 (4,592)
Interest expense 48,234 49,057 91,588 97,664
Interest income (778) (341) (873) (762)
Income (loss) from operations (34,048) (52,495) (87,582) (114,085)
Depreciation and amortization 86,623 83,591 172,307 167,482
Asset impairment 2,599 2,078 11,674 12,755
Operating lease expense adjustment (8,308) (5,326) (16,615) (9,990)
Non-cash stock-based compensation expense 3,619 4,527 7,504 9,310
Transaction and organizational
restructuring costs 229 689 602 2,573
Adjusted EBITDA(1) $ 50,714 $ 33,064 $ 87,890 $ 68,045
(1) Adjusted EBITDA includes $8.4 million and $8.8 million benefit for the
three and six months ended June 30, 2022 , respectively, and $1.3 million and
$12.0 million benefit for the three and six months ended June 30, 2021 ,
respectively, of government grants and credits recognized in other operating
income.
Adjusted Free Cash Flow
Adjusted Free Cash Flow is a non-GAAP liquidity measure that we define as net
cash provided by (used in) operating activities before: distributions from
unconsolidated ventures from cumulative share of net earnings, changes in
prepaid insurance premiums financed with notes payable, changes in operating
lease assets and liabilities for lease termination, cash paid/received for
gain/loss on facility operating lease termination, and lessor capital
expenditure reimbursements under operating leases; plus: property insurance
proceeds and proceeds from refundable entrance fees, net of refunds;
less: non-development capital expenditures and payment of financing lease
obligations. Non-development capital expenditures are comprised of corporate and
community-level capital expenditures, including those related to maintenance,
renovations, upgrades, and other major building infrastructure projects for our
communities and is presented net of lessor reimbursements. Non-development
capital expenditures do not include capital expenditures for: community
expansions, major community redevelopment and repositioning projects, and the
development of new communities.
We believe that presentation of Adjusted Free Cash Flow as a liquidity measure
is useful to investors because (i) it is one of the metrics used by our
management for budgeting and other planning purposes, to review our historic and
prospective sources of operating liquidity, and to review our ability to service
our outstanding indebtedness, pay dividends to stockholders, engage in share
repurchases, and make capital expenditures, including development capital
expenditures; and (ii) it provides an indicator to management to determine if
adjustments to current spending decisions are needed.
Adjusted Free Cash Flow has material limitations as a liquidity measure,
including: (i) it does not represent cash available for dividends, share
repurchases, or discretionary expenditures since certain non-discretionary
expenditures, including mandatory debt principal payments, are not reflected in
this measure; (ii) the cash portion of non-recurring charges related to
gain/loss on facility lease termination generally represent charges/gains that
may significantly affect our liquidity; and (iii) the impact of timing of cash
expenditures, including the timing of non-development capital expenditures,
limits the usefulness of the measure for short-term comparisons.
43
--------------------------------------------------------------------------------The table below reconciles Adjusted Free Cash Flow from net cash provided by (used in) operating activities.
Three Months Ended Six Months Ended
June 30, June 30,
(in thousands) 2022 2021 2022 2021
Net cash provided by (used in) operating
activities $ 11,577 $ 3,410 $ (11,678) $ (20,447)
Net cash provided by (used in) investing
activities (43,838) 1,561 (80,001) (2,245)
Net cash provided by (used in) financing
activities (17,690) (20,992) (18,093) (56,554)
Net increase (decrease) in cash, cash
equivalents, and restricted cash $ (49,951) $
(16,021)
Net cash provided by (used in) operating activities$ 11,577 $ 3,410 $ (11,678) $ (20,447) Distributions from unconsolidated ventures from cumulative share of net earnings - (5,355) (561) (5,355) Changes in prepaid insurance premiums financed with notes payable (5,377) (4,200) 11,252 8,785 Changes in assets and liabilities for lessor capital expenditure reimbursements under operating leases (3,367) (7,943) (4,857) (15,506)
Non-development capital expenditures, net (45,686) (35,795)
(85,012) (63,245)
Payment of financing lease obligations (5,610) (4,864) (11,100) (9,653)
Adjusted Free Cash Flow(1) $ (48,463) $
(54,747)
(1) Adjusted Free Cash Flow includes: •$0.2 million and$0.6 million for the three and six months endedJune 30, 2022 , respectively, and$0.7 million and$2.6 million for the three and six months endedJune 30, 2021 , respectively, for transaction and organizational costs. •$4.6 million and$5.4 million benefit for the three and six months endedJune 30, 2022 , respectively, and$0.4 million and$2.1 million benefit for the three and six months endedJune 30, 2021 , respectively, from government grants and credits received. •$1.2 million and$3.1 million recoupment for the three and six months endedJune 30, 2022 , respectively, and$14.3 million recoupment for both the three and six months endedJune 30, 2021 , respectively, of accelerated/advanced Medicare payments.
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