Brookdale Senior Living Bank of America 2008 Health Care Conference - May 2008
Forward-Looking Statements 1 Certain items in this presentation and statements made by or on behalf of Brookdale Senior Living Inc. relating hereto may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Those forwardlooking statements are subject to various risks and uncertainties. Although we believe the expectations reflected in any forwardlooking statements are based on reasonable assumptions, we can give no assurance that our expectations will be attained and actual results 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, our ability to generate sufficient cash flow to cover required interest and long-term operating lease payments; our inability to extend or replace our credit facility when it expires; the effect of our indebtedness and long-term operating leases on our liquidity; the risk of loss of property pursuant to our mortgage debt and long-term lease obligations; the possibilities that changes in the capital markets, including changes in interest rates and/or credit spreads, or other factors could make financing more expensive or unavailable to us; the risk that we may be required to post additional cash collateral in connection with our interest rate swaps; the risk that we may not be able to pay or maintain dividends; events which adversely affect the ability of seniors to afford our monthly resident fees or entrance fees; the conditions of housing markets in certain geographic areas; changes in governmental reimbursement programs; our limited operating history on a combined basis; our ability to effectively manage our growth; our ability to maintain consistent quality control; delays in obtaining regulatory approvals; our ability to integrate acquisitions (including the ARC acquisition) into our operations; unforeseen costs associated with the acquisition of new facilities; competition for the acquisition of assets; our ability to obtain additional capital on terms acceptable to us; a decrease in the overall demand for senior housing; our vulnerability to economic downturns; acts of nature in certain geographic areas; terminations of our resident agreements and vacancies in the living spaces we lease; increased competition for skilled personnel; departure of our key officers; increases in market interest rates; environmental contamination at any of our facilities; failure to comply with existing environmental laws; an adverse determination or resolution of complaints filed against us; the cost and difficulty of complying with increasing and evolving regulation; and other risks detailed from time to time in our filings with the Securities and Exchange Commission, including our Annual Report on Form 10-K. We expressly disclaim any obligation to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in our expectations with regard thereto or change in events, conditions or circumstances on which any statement is based.
Company Overview 2 Brookdale is one of the largest operators of senior housing in the US Operates 550 properties in 35 states with ability to serve approximately 52,000 residents and employs over 34,000 associates Multiple product offerings independent & assisted living, CCRCs (Continuing Care Retirement Communities), ancillary services Reported CFFO grew by more than 35% in last 12 months Geographic Presence Segment Mix (by capacity) CCRC 24% (12,313 units) Retirement Centers 34% (17,741 units) Assisted Living 42% (21,803 units) Total Units: 51,857 Note: See reconciliations of Non-GAAP measures at the end of the presentation Note: reflects new segment reporting
Last 12 Months Accomplishments 3 Year over year growth: Reported CFFO up 38% Strong revenue per unit increase Strong same store performance: NOI grew 7% Driven by rate growth of more than 6% plus ancillary services Substantially completed major integration of multiple companies and communities Continued to roll out ancillary services Platform now serving 31,000 units with therapy and 8,300 units with home health Note: See reconciliations of Non-GAAP measures at the end of the presentation
Retirement Centers - 34% of Portfolio 4 Independent living with assisted living units in some communities Big box average 183 units with extensive common area and amenities Average monthly revenue of approximately $3,200 per month Monthly fee includes dining, housekeeping activities, emergency call response and, in the AL, assistance with activities of daily living (ADLs) 100% private pay Average length of resident stay: approximately 3 years
Assisted Living - 42% of Portfolio 5 Combination of hospitality, assistance with ADL s and limited healthcare services Single story structures with home-like feel approximately 51 beds on average Average monthly revenue of approximately $3,700 per month Monthly fee includes dining, housekeeping, assistance with ADLs and limited healthcare services Largest Alzheimer s (MC) provider with close to 3,100 units nationally branded as Clare Bridge 95% private pay Average length of resident stay: approximately 2 years
CCRC - 24% of Portfolio 6 Full range of senior living services, offering IL, AL, MC and SNF care in one location Large campuses average 330 units Average monthly revenue of approximately $4,700 per month Mix of entrance fee (4,692 units) locations and rental (5,846 units) locations Allows residents to age in place and have certainty of healthcare availability and, in EF CCRCs, predictable costs 78% private pay and 19% Medicare Average length of resident stay: Entrance fee communities: 10-12 years Rental communities: 4-6 years
Favorable Supply-Demand Dynamics 7 Despite the challenging economic environment, including the housing market correction, demand trends remain positive US population 70+ years old is estimated to grow by 3.5 million through 2015 Only 1.9 million units serving a population of 27.7 million seniors Current 7% penetration rate implies demand growth of 30,000 units per year US Seniors Population Trends (70+ years old) (1) New Construction Starts (2) Population (MM) Implied demand growth of 30,000 units per year tracks projected new supply of 28,000 30,000 32.0 31.2 25,000 27,840 31.0 30.0 20,000 23,552 23,362 23,324 29.0 15,000 28.0 27.7 10,000 27.0 26.0 5,000 25.0 0 2007 2015 2004 2005 2006 2007 35,000 Demand Growth (1) Source: US Census Bureau. (2) Source: 2007 NIC/ASHA Senior Housing Construction Trends Report 2007 includes all units under construction vs. prior years that were only construction starts, resulting in approximately a 30% carryover from 2006
Strength of Senior Housing Market 8 The industry has absorbed the excess capacity of the late 1990s and demonstrated consistent, improving performance over the past 5 years Industry occupancy rates have increased from 84% in 2001 to 90% in 2007 which has led industry EBITDAR margin improvement to 29% from 20% Senior Living Occupancy Rates and EBITDAR Margins (1) (2) 95% 40% 35% 90% 30% 85% 80% 25% 20% 15% 10% 5% Brookdale generates 30% margins 75% 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 0% Occupancy Rates EBITDAR Margins (1) Includes Alterra, American Retirement Corp, Brookdale, Capital Senior Living, Emeritus and Sunrise Senior Living. (2) Source: Lehman Equity Research and company filings.
Growth Strategy 9 Projected annual organic growth of 15% to 20% Organic Expansions / Acquisitions Strong supply-demand fundamentals 7 9% annual same-store FOI growth Increasing services to existing residents Capitalize on excess demand at existing locations Projects expected to earn 12-15+% unlevered returns Continue to selectively consolidate highly fragmented industry Note: See reconciliations of Non-GAAP measures at the end of the presentation
Organic Growth 10 Recent growth in facility operating income driven by rate increases, ancillary services and cost savings Same-store revenue growth of 7%, with 7% facility operating income growth over the last 12 months (through Q1 2008) Same store facility operating growth of 12.7% over 5 year period 2003-2007 Same Store FOI Growth (1) 550 500 450 CAGR = 12.7% 446 498 ($ millions) 400 350 354 399 309 300 250 200 2003 2004 2005 2006 2,007 (1) Includes historical American Retirement facilities
Organic Growth - Ancillary Services 11 Includes therapy and home health services Physical, speech and occupational therapy Home health services which may include therapy and skilled nursing Provide services at a lower cost than competitors by leveraging existing platform and geographic clustering of communities Rollout to legacy Brookdale units ahead of plan More than 18,500 units reached by therapy services within first 18 months Platform now serving 31,500 units with therapy and 8,300 units with home health Legacy Brookdale Units Reached by Therapy Monthly FOI at Stabilized ARC Units 20,000 15,000 10,000 5,000 3,766 8,949 14,245 15,483 17,101 18,565 Therapy Home Health 194 35 158 162 16 18 159 142 144 188 33 150 197 36 161 213 44 169 0 Q4 2006 Q1 2007 Q2 2007 Q3 2007 Q4 2007 Q1 2008 Q4 2006 Q1 2007 Q2 2007 Q3 2007 Q4 2007 Q1 2008
Expansions Initiative 12 Opportunity Take advantage of excess demand at facilities that are substantially full Add another level of care in a core market Unlevered returns of 12 15+% upon stabilization Identified 60 facilities with expansion opportunities and 1 new development Completed expansions at 5 facilities in 2007, 2 facilities in 2008 and 12 additional projects are currently underway Units open since Q1 2007 are on track to generate at least 12-15+% unlevered returns
CFFO Growth 13 Brookdale s cash flow per share has grown dramatically since the IPO Adjusted CFFO per share grew 37% in 2007 over 2006 Declared dividend per share of $.25 for Q1 2008 Annualized Adjusted CFFO Growth Since IPO 2.00 1.80 1.60 1.40 1.20 1.00 0.89 0.98 1.28 1.20 1.59 1.46 1.85 1.86 1.72 1.64 0.80 0.60 0.40 0.20 - Q4 2005 Q1 2006 Q2 2006 Q3 2006 Q4 2006 Q1 2007 Q2 2007 Q3 2007 Q4 2007 Q1 2008 (Note: Adjusted CFFO excludes the impact of integration/acquisition expenses and accounting conformity changes see reconciliation at the end of the presentation)
Attractive Return Profile 14 From 2003, annualized same-store FOI has grown approx. 12% annually (1) The current dividend yield of 4.0% (2) plus conservative growth assumptions create an attractive total return profile Illustrative Investment Returns CFFO Growth per Share Sensitivity FOI Growth 7.0% 8.0% 9.0% Implied CFFO Growth per Share 15.1% 19.0% 22.8% Plus: Dividend Yield 4.0% 4.0% 4.0% Total Return 19.1% 23.0% 26.8% (1) Includes historical American Retirement communities (2) Assuming share price of $25.02 (Closing price as of May 12, 2008)
Net Asset Value Per Share 15 Implied share price in the mid - $40s based upon NAV analysis Implied forward cap rate of 8.4% based upon May 12 share price of $25.02 Healthcare REITs trade at forward cap rates of 7.0% - 7.5%, but have just 2% estimated NOI growth (1) ($ millions, except stock price) Capital Structure Shares Outstanding (millions) 102 Current Stock Price (3/13/08) $ 25.02 Equity Market Cap 2,557 Mortgage Debt/Capitalized Leases $ 2,173 Outstanding Line of Credit 203 Cash Lease Expense @ 10x 2,712 Less: Cash (120) Net Debt $ 4,968 Total Enterprise Value $ 7,525 Sensitivity of Net Asset Value per Share Forward Cap Rate 6.00% 6.50% 7.00% 7.50% 8.00% 8.50% 9.00% Forward NOI $ 632 $ 632 $ 632 $ 632 $ 632 $ 632 $ 632 Implied Enterprise Value $ 10,526 $ 9,716 $ 9,022 $ 8,421 $ 7,894 $ 7,430 $ 7,017 Less: Net Debt (4,968) (4,968) (4,968) (4,968) (4,968) (4,968) (4,968) Net Asset Value $ 5,558 $ 4,748 $ 4,054 $ 3,453 $ 2,926 $ 2,462 $ 2,049 Per Share $ 54 $ 46 $ 40 $ 34 $ 29 $ 24 $ 20 Current Price Discount 54% 46% 37% 26% 13% ( 4%) ( 25%) (1) Based upon Merrill Lynch REIT Valuation Handbook published March 7, 2008
Capital Structure 16 At end of Q1, Brookdale had approximately $120 million of unrestricted cash and $79 million of undrawn line capacity Capitalization ($000s, except where indicated) Q1 2008 Cash 119,536 Debt 1,877,370 Capitalized Leases 295,258 Line of Credit 203,000 Total Debt 2,375,628 Equity Market Cap (1) 2,550,586 Total Capitalization (1) 4,926,214 Debt as % of Total Capitalization 48.2% (1) Assuming share price of $25.02 (Closing price as of May 12, 2008)
Investment Highlights 17 Fundamental growth drivers continue to support CFFO growth of 15% to 20% Core NOI growth elements remain solid Focused to take advantage of strong market presence and platform as economic environment improves Occupancy performance reasonably stable Well positioned business organization and platform Significant growth potential from high return/low risk growth opportunities Growth driven by organic FOI growth and ancillary services Significant embedded growth from expansion of existing facilities 38% CFFO growth over the last 12 months Attractive valuation given imbedded asset value and growth profile
Brookdale Senior Living Bank of America 2008 Health Care Conference - May 2008
Non-GAAP Financial Measure Definitions 19 Adjusted EBITDA Adjusted EBITDA is a measure of operating performance that is not calculated in accordance with U.S. generally accepted accounting principles ( GAAP ). Adjusted EBITDA should not be considered in isolation or as a substitute for net income, income from operations or cash flows provided by or used in operations, as determined in accordance with GAAP. Adjusted EBITDA is a key measure of the Company's operating performance used by management to focus on operating performance and management without mixing in items of income and expense that relate to long-term contracts and the financing and capitalization of the business. We define Adjusted EBITDA as net income (loss) before provision (benefit) for income taxes, non-operating (income) loss items, depreciation and amortization, straightline lease expense (income), amortization of deferred gain, amortization of deferred entrance fees, and non-cash compensation expense and including entrance fee receipts and refunds. Cash From Facility Operations Cash From Facility Operations is a measurement of liquidity that is not calculated in accordance with GAAP and should not be considered in isolation as a substitute for cash flows provided by or used in operations, as determined in accordance with GAAP. We define Cash From Facility Operations as net cash provided by (used in) operating activities adjusted for changes in operating assets and liabilities, deferred interest and fees added to principal, refundable entrance fees received, entrance fee refunds disbursed, lease financing debt amortization with fair market value or no purchase options, other, and recurring capital expenditures. Recurring capital expenditures include expenditures capitalized in accordance with GAAP that are funded from CFFO. Amounts excluded from recurring capital expenditures consist primarily of unusual or non-recurring capital items (including integration capital expenditures), facility purchases and/or major projects or renovations that are funded using financing proceeds and/or proceeds from the sale of facilities that are held for sale. Beginning in 2008, our calculation of CFFO was modified to subtract principal amortization related to our capital leases that contain fair market value or no purchase options. Facility Operating Income Facility Operating Income is not a measurement of operating performance calculated in accordance with GAAP and should not be considered in isolation as a substitute for net income, income from operations, or cash flows provided by or used in operations, as determined in accordance with GAAP. We define Facility Operating Income as net income (loss) before provision (benefit) for income taxes, non-operating (income) loss items, depreciation and amortization, facility lease expense, general and administrative expense, including non-cash stock compensation expense, amortization of deferred entrance fee revenue and management fees.
Adjusted EBITDA Reconciliation 20
Cash From Facility Operations Reconciliations 21 CFFO Definition Reconciliation (includes the impact of integration/acquisition expenses and accounting conformity changes) 2008 Quarter Full Year 2007 Quarter Ended: Full Year Ended: ($ per share, all items rounded to the nearest penny) 2006 March 31 June 30 Sept. 30 Dec. 31 2007 March 31 Reported CFFO per Old Definition 1.06 0.33 0.42 0.43 0.28 1.46 0.39 Less: Total Debt Amortization (0.08) (0.04) (0.04) (0.04) (0.04) (0.16) (0.04) Plus: Amort of Leases w/ Below Mkt. Purchase Options and Debt 0.04 0.03 0.02 0.03 0.03 0.10 0.02 Reported CFFO per Current Revised Definition 1.03 0.32 0.41 0.41 0.27 1.41 0.38 Impact of Integration-related Accounting Items - - - - 0.07 0.07 - Integration Expenses 0.20 0.03 0.04 0.04 0.08 0.19 0.03
Facility Operating Income Reconciliation 22