Brookdale senior living solutions (BKD) operates 130 retirement centers, 915 assisted living communities and 78 continuing care retirement centers (CCRCs), serving about 108,000 residents. Not only is BKD the largest senior living operator in U.S., the company doubled its revenue in the past five years, from $2.4 billion in 2011 to $4.9 billion in 2015. But neither the size nor the revenue growth increase has translated to earnings. The medical care REIT has not distributed any dividends since 2008.
Management has not retained earnings either. In each of the past five years, for every dollar of revenue, 95 cents were used to pay for operating expenses. And non-operating expenses added 50 cents, which was paid by equity and debt issuance. Your correspondent often wonders when companies choose to classify debt and financing obligations as non-operating expenses. If debt, classified as non-operating expense, is not used for the operations of the business, what is it for?
Perhaps, to build an empire. At the promise of future synergy benefits, economies of scale and increased operational efficiency, BKD purchased, in 2014, Emertitus Corporation, a senior living service provider operating residential style communities. Valued at $3 billion, BKD assumed $1.4 billion of Emertitus debt and exchanged $1.6 billion of its shares, notes Jason Oliva of SHN, a senior housing industry publication.