Brookdale Senior Living Soars

August 7, 2008

August 7, 2008
Are investors focusing too much on occupancy? That would seem to be the case, as Brookdale Senior Living posted some mixed results, with the end result that its shares soared by more than 26% this morning before settling back a bit. Second quarter occupancy was down 110 basis points from the first quarter, which was the bad news and what investors were probably worrying about in June and July, but almost all of that had been made up by the end of July, so things are looking much better (the good news). 

Just as importantly, and maybe more so, net entrance fee cash flow at the company's CCRCs nearly tripled from the first quarter and they closed the highest number of entrance fee sales in six quarters, despite the housing market. That either means their new marketing program is working better than expected, or there is pent up demand for their units from people who just can't wait any longer, and it is probably the result of both.

The bad news is that adjusted EBITDA declined by nearly 4% from the first quarter of 2007, and cash flow from facility operations (CFFO) decreased by more than 11% from the year-ago quarter, but this year's second quarter did include an $8.0 million reserve for certain litigation. Removing various one-time charges from both quarters, the CFFO increased by 3.5% year-over-year. With Brookdale's solid uptick in occupancy since May, especially with CCRC sales, investors may shift their focus to operations and cash flow growth. In any event, this was welcome news.


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