Unassociated Document

FOR IMMEDIATE RELEASE

Contact:

Brookdale Senior Living Inc.

Ross Roadman 615-376-2412

Brookdale Announces Second Quarter 2008 Results

Second Quarter 2008 Highlights

·	Average occupancy for the second quarter was 88.9%, versus 90.0% for the first quarter of 2008 and 90.7% for the second quarter of 2007.

·	Occupancy improved significantly since May, approaching a 1% increase through the end of July.

·	Revenue for the second quarter was $478.2 million, up 4.3% from the second quarter of 2007.

·	Cash From Facility Operations for the quarter was $36.7 million, or $0.36 per outstanding common share and was $0.45 per outstanding common share, excluding integration and start-up expenses and non-recurring items of $0.09 per outstanding common share.

·	Completed $143.1 million of financings in the second quarter, which generated $139.7 million of net proceeds.

·	Repurchased $20 million of the Company’s shares during the second quarter.

·	Declared a quarterly cash dividend on the Company’s common stock of $0.25 per share for the quarter ended June 30, 2008.

·	Second quarter net loss of $(3.5) million, or $(0.03) per diluted common share, including non-cash expenses of $84.0 million for depreciation and amortization, non-cash stock-based compensation expense and straight-line lease expense, net of deferred gain amortization.

Nashville, TN. August 6, 2008 – Brookdale Senior Living Inc. (NYSE: BKD) (the “Company”) today reported financial results for the second quarter of 2008. Net loss for the quarter ended June 30, 2008 was $(3.5) million, or $(0.03) per diluted common share. The loss includes non-cash items for depreciation and amortization, non-cash stock-based compensation expense and straight-line lease expense, net of deferred gain amortization, which totaled $84.0 million.

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Bill Sheriff, Brookdale’s CEO, said, “The key drivers of our business continued to improve throughout the second quarter and July – occupancy turned from declines to positive gains, rate growth remained strong and ancillary services were ahead of plan. Occupancy trends started stabilizing in the second quarter, turned positive in June and July and we expect an improvement in August as well. On the entrance fee side, we closed the highest number of sales in six quarters with our net entrance fee cash flow nearly tripling from last quarter. Our ancillary services business continued its rapid growth through the expansion of our therapy services and the addition of multiple home health agencies through start-ups and acquisitions. At the same time, our corporate overhead expense continues to trend lower as a percentage of revenues and the organizational changes that we instituted at the beginning of the year are becoming increasingly effective. Overall, we are very happy with the continued growth of our business and are looking forward to even better performance.”

Mark Ohlendorf, Co-President and CFO of Brookdale, commented, “As we continuously seek to improve our operating platform, two key initiatives where we have been successful are reducing vacancy at the community management-level and strategically deploying more salespeople in the assisted living portfolio. As a result, we have approximately 50 more community-level management positions (together with approximately 50 more sales positions) currently filled compared to last year. While these efforts temporarily increase the growth rate of expenses, we expect them to create higher occupancy and margins going forward. On the balance sheet side, we have completed $430 million of refinancings year-to-date, generating $250 million of net proceeds. We have completed our financings for this year and, after giving effect to our contractual extension rights, we have no significant facility-level debt maturities through 2010. Our liquidity position remains very strong.”

Brookdale’s management utilizes Adjusted EBITDA and Cash From Facility Operations to evaluate the Company’s performance and liquidity because these metrics exclude non-cash expenses such as depreciation and amortization, non-cash stock-based compensation expense and straight-line lease expense, net of deferred gain amortization. Brookdale also uses Facility Operating Income to assess the performance of its facilities.

Second quarter Adjusted EBITDA and Cash From Facility Operations included a non-recurring $8.0 million litigation-related charge and integration costs of $2.4 million. Also included is $1.0 million of start-up losses related to the roll-out of ancillary services to Brookdale communities and a $2.5 million benefit related to the acquisition of a previously managed community for a net of $0.09 per outstanding common share.

For the quarter ended June 30, 2008, Adjusted EBITDA was $79.6 million. Excluding the litigation-related charge, integration and start-up costs and acquisition benefit, Adjusted EBITDA was $88.6 million, an increase of 7.0% over the second quarter of 2007.

For the quarter ended June 30, 2008, Cash From Facility Operations was $36.7 million, or $0.36 per common share outstanding at June 30, 2008. Excluding the litigation-related charge, integration and start-up costs and acquisition benefit, Cash From Facility Operations was $0.45 per common share outstanding.

Facility Operating Income was $164.3 million for the quarter ended June 30, 2008 versus $166.1 million in the second quarter of 2007.

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Same store revenues grew 5.9% for the twelve months ended June 30, 2008 over the corresponding period ending in 2007, and same store Facility Operating Income grew 4.3% when compared to the same prior year period. Similarly, same store revenues grew 3.9% for the quarter ended June 30, 2008 over the same period in 2007, and same store Facility Operating Income decreased 0.9% when compared to the second quarter of 2007. The twelve month same store data includes the effect of the historical results of the ARC facilities and excludes $7.0 million of charges in the fourth quarter of 2007 relating to integration-related accounting items. Schedules are presented later in the release with more detail.

By the end of the quarter, the Company’s ancillary services business provided therapy services to over 32,000 Brookdale units. The therapy and home health services in the legacy ARC portfolio, which has a higher health center mix than the balance of the Brookdale portfolio, reached $215 of monthly Facility Operating Income per occupied unit in the second quarter. Since the end of the first quarter, the Company received home health agency licensure for two markets and completed five home health agency acquisitions. At the end of the quarter, the Company’s home health agencies were serving over 10,900 units across the total Brookdale portfolio.

The Company currently has eleven expansion projects under construction with approximately 850 units. During the second quarter, four expansions with a total of 95 units opened, adding a new level of care at two of the communities.

During the second quarter of 2008, Brookdale completed $143.1 million in mortgage financings, producing incremental proceeds of $139.7 million. As of June 30, 2008, $50 million was drawn on the Company’s revolving loan facility and $116 million of letters of credit had been issued under the facility.

On June 30, 2008, the Company entered into a lease related to a community previously managed by the Company. The community was purchased by a REIT from a third party and the Company became the tenant. In connection with the transaction a loan due to the Company from the previously managed community was repaid and the Company was able to recognize certain development fees and deferred interest totaling $2.5 million.

Litigation Charge

The Company’s second quarter 2008 results include a non-recurring charge of $8.0 million to G&A expense relating to the establishment of a reserve in connection with certain previously-disclosed litigation that relates to a 2004 acquisition. The Company recently reached an agreement with the plaintiffs to settle one of the cases and is in the process of preparing a release and stipulation and order of dismissal. The Company is currently in settlement discussions regarding the second case. If the settlement discussions are unsuccessful, the Company intends to vigorously defend the second case. Based on a review of the current status of the litigation with counsel (taking into account settlement discussions with the plaintiffs), the Company established a reserve in the amount of $8.0 million, which the Company believes is a reasonable estimate of the aggregate loss exposure for these matters (including the costs and expenses to settle and/or defend each of these matters).

Earnings Conference Call

Brookdale’s management will conduct a conference call on Thursday, August 7, 2008 to review the financial results of its second quarter ended June 30, 2008. The conference call is scheduled

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for 8:00 AM ET. All interested parties are welcome to participate in the live conference call. The conference call can be accessed by dialing (866) 845-7252 (from within the U.S.) or (706) 634-9069 (from outside of the U.S.) ten minutes prior to the scheduled start and referencing the “Brookdale Senior Living Second Quarter Earnings Call.”

A webcast of the conference call will be available to the public on a listen-only basis at www.brookdaleliving.com. Please allow extra time prior to the call to visit the site and download the necessary software required to listen to the internet broadcast. A replay of the webcast will be available for three months following the call.

For those who cannot listen to the live call, a replay will be available until 11:59 PM ET on August 15, 2008 by dialing (800) 642-1687 (from within the U.S.) or (706) 645-9291 (from outside of the U.S.) and referencing access code “58192511.” A copy of this earnings release is posted on the Investor Relations page of the Brookdale website (www.brookdaleliving.com).

About Brookdale Senior Living

Brookdale Senior Living Inc. is a leading owner and operator of senior living communities throughout the United States. The Company is committed to providing an exceptional living experience through properties that are designed, purpose-built and operated to provide the highest-quality service, care and living accommodations for residents. Currently the Company owns and operates independent living, assisted living, and dementia-care communities and continuing care retirement centers, with 550 communities in 35 states and the ability to serve approximately 52,000 residents.

Safe Harbor

Certain items in this press release and the associated earnings conference call may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Those 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, including, but not limited to, statements relating to our operational initiatives and our expectations regarding their effect on our results; our ability to deploy capital; our expectations regarding occupancy, the demand for senior housing, and our share repurchase program; our belief regarding the value of our common stock and our growth prospects; our plans to generate growth organically through occupancy improvements, increases in annual rental rates and the achievement of operating efficiencies and cost savings; our plans to expand our offering of ancillary services (therapy and home health); our plans to expand existing facilities and develop new facilities; the expected project costs for our expansion and development program; our expected levels of expenditures; our expectations regarding liquidity; our expectations regarding financings and refinancings of assets; our ability to secure financing or extend existing debt as it matures; the anticipated cost and expense associated with the resolution of pending litigation and our expectations regarding the disposition thereof; our ability to acquire the fee interest in facilities that we currently operate at attractive valuations; our ability to close accretive acquisitions; our ability to close dispositions of underperforming facilities; our expectations for the performance of our entrance fee communities; our ability to anticipate, manage and address industry trends and their effect on our business; our ability to pay and grow dividends; and our ability to increase revenues, earnings, Adjusted EBITDA, Cash From Facility Operations, and/or Facility Operating Income. Forward-looking statements are

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generally identifiable by use of forward-looking terminology such as "may," "will," "should," "potential," "intend," "expect," "endeavor," "seek," "anticipate," "estimate," "overestimate," "underestimate," "believe," "could," "would," "project," "predict," "continue," "plan" or other similar words or expressions. Forward-looking statements are based on certain assumptions or estimates, discuss future expectations, describe future plans and strategies, contain projections of results of operations or of financial condition, or state other forward-looking information. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Although we believe that the expectations reflected in such forward-looking statements are based on reasonable assumptions, actual results and performance could differ materially from those set forth in the forward-looking statements. Factors which could have a material adverse effect on our operations and future prospects or which could cause events or circumstances to differ from these forward-looking statements include, but are not limited to, our determination from time to time whether to purchase any shares under the repurchase program; our ability to fund any repurchases; our ability to generate sufficient cash flow to cover required interest and long-term operating lease payments; our inability to extend (or refinance) debt as it matures or replace our credit facility when it expires; the risk that we may not be able to satisfy the conditions precedent to exercising the extension options associated with certain of our debt agreements; 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. 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 our management's views as of the date of this press release and/or the associated earnings conference call. The factors discussed above and the other factors noted in our SEC filings from time to time could cause our actual results to differ significantly from those contained in any forward-looking statement. We cannot guarantee future results, levels of activity, performance or achievements and 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.

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Condensed Consolidated Statements of Operations

(unaudited, in thousands, except for per share data)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2008			2007			2008			2007
Revenue
Resident fees	$	475,937		$	456,622		$	954,772		$	901,960
Management fees		2,264			1,788			4,077			3,284
Total revenue		478,201			458,410			958,849			905,244

Expense
Facility operating (excluding depreciation and amortization of $47,204, $63,481, $98,084 and $118,443, respectively)		306,526			285,866			611,585			566,675
General and administrative (including non-cash stock-based compensation expense of $8,621, $8,192, $16,631 and $19,012, respectively)		40,297			35,758			76,685			76,411
Facility lease expense		67,199			67,176			135,011			135,657
Depreciation and amortization		68,876			82,471			140,816			155,455
Total operating expense		482,898			471,271			964,097			934,198
Loss from operations		(4,697	)		(12,861	)		(5,248	)		(28,954	)

Interest income		3,160			1,563			4,786			3,383
Interest expense:
Debt		(37,424	)		(35,078	)		(73,295	)		(68,530	)
Amortization of deferred financing costs		(2,379	)		(2,109	)		(3,936	)		(3,727	)
Change in fair value of derivatives and amortization		36,743			17,619			(8,890	)		12,838
Loss on extinguishment of debt		(231	)		(803	)		(3,052	)		(803	)
Equity in loss of unconsolidated ventures		(935	)		(601	)		(1,108	)		(2,054	)
Other non-operating (loss) income		(493	)		238			(493	)		238
Loss before income taxes		(6,256	)		(32,032	)		(91,236	)		(87,609	)
Benefit for income taxes		2,771			12,715			32,658			33,283
Loss before minority interest		(3,485	)		(19,317	)		(58,578	)		(54,326	)
Minority interest		-			642			-			511
Net loss	$	(3,485	)	$	(18,675	)	$	(58,578	)	$	(53,815	)

Basic and diluted loss per share	$	(0.03	)	$	(0.18	)	$	(0.57	)	$	(0.53	)

Weighted average shares used in
computing basic and diluted loss per share		101,856			101,520			101,925			101,411

Dividends declared per share	$	0.25		$	0.50		$	0.50		$	0.95

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Condensed Consolidated Balance Sheets

(in thousands)

	June 30, 2008		December 31, 2007
	(unaudited)

Cash and cash equivalents	$	60,442	$	100,904
Cash and escrow deposits - restricted		77,478		76,962
Accounts receivable, net		74,735		66,807
Other current assets		44,654		47,162
Total current assets		257,309		291,835
Property, plant, and equipment and
leasehold intangibles, net		3,762,471		3,760,453
Other assets, net		721,748		759,334
Total assets	$	4,741,528	$	4,811,622

Current liabilities	$	830,501	$	549,767
Long-term debt, less current portion		2,114,622		2,119,217
Other liabilities		490,722		723,100
Total liabilities		3,435,845		3,392,084
Stockholders’ equity		1,305,683		1,419,538
Total liabilities and stockholders’ equity	$	4,741,528	$	4,811,622

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Condensed Consolidated Statements of Cash Flows

(unaudited, in thousands)

	Six Months Ended June 30,
	2008			2007
Cash Flows from Operating Activities
Net loss	$	(58,578	)	$	(53,815	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Loss on extinguishment of debt		3,052			-
Depreciation and amortization		144,752			159,182
Minority interest		-			(511	)
Gain on sale of assets		-			(403	)
Equity in loss of unconsolidated ventures		1,108			2,054
Distributions from uncon. ventures from cumulative share of net earnings		1,372			961
Amortization of deferred gain		(2,171	)		(2,170	)
Amortization of entrance fees		(11,820	)		(8,900	)
Proceeds from deferred entrance fee revenue		7,957			8,642
Deferred income tax benefit		(34,194	)		(33,326	)
Change in deferred lease liability		10,966			12,364
Change in fair value of derivatives and amortization		8,890			(12,838	)
Non-cash stock-based compensation		16,631			19,012
Changes in operating assets and liabilities:
Accounts receivable, net		(8,459	)		(4,363	)
Prepaid expenses and other assets, net		2,248			4,669
Accounts payable and accrued expenses		(16,163	)		(10,763	)
Tenant refundable fees and security deposits		1,368			4,656
Other		9,765			459
Net cash provided by operating activities		76,724			84,910
Cash Flows from Investing Activities
Decrease in lease security deposits and lease acquisition deposits, net		1,872			1,602
Increase in cash and escrow deposits — restricted		(3,833	)		(12,281	)
Additions to property, plant, and equipment and
leasehold intangibles, net of related payables		(87,668	)		(68,933	)
Acquisition of assets, net of related payables and cash received		(1,207	)		(149,788	)
Payment on (issuance of) notes receivable, net		39,661			(10,251	)
Investment in unconsolidated ventures		(493	)		(1,176	)
Distributions received from unconsolidated ventures		154			1,765
Net cash used in investing activities		(51,514	)		(239,062	)
Cash Flows from Financing Activities
Proceeds from debt		444,347			249,011
Repayment of debt		(224,192	)		(25,999	)
Buyout of capital lease obligation		-			(51,114	)
Proceeds from line of credit		170,000			328,500
Repayment of line of credit		(318,000	)		(232,000	)
Payment of dividends		(77,852	)		(93,178	)
Purchase of treasury stock		(20,020	)		-
Payment of financing costs, net of related payables		(13,424	)		(5,179	)
Cash portion of loss on extinguishment of debt		(1,043	)		-
Other		(803	)		(612	)
Refundable entrance fees:
Proceeds from refundable entrance fees		10,912			8,322
Refunds of entrance fees		(8,475	)		(10,404	)
Recouponing and payment of swap termination		(27,122	)		-
Net cash (used in) provided by financing activities		(65,672	)		167,347
Net (decrease) increase in cash and cash equivalents		(40,462	)		13,195
Cash and cash equivalents at beginning of period		100,904			68,034
Cash and cash equivalents at end of period	$	60,442		$	81,229

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Non-GAAP Financial Measures

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, straight-line lease expense (income), amortization of deferred gain, amortization of deferred entrance fees, and non-cash compensation expense and including entrance fee receipts and refunds.

We believe Adjusted EBITDA is useful to investors in evaluating our performance, results of operations and financial position for the following reasons:

·	It is helpful in identifying trends in our day-to-day performance because the items excluded have little or no significance to our day-to-day operations;

·	It provides an assessment of controllable expenses and affords management the ability to make decisions which are expected to facilitate meeting current financial goals as well as achieve optimal financial performance; and

·	It is an indication to determine if adjustments to current spending decisions are needed.

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The table below reconciles Adjusted EBITDA from net loss for the three and six months ended June 30, 2008 and 2007 (in thousands):

	Three Months Ended June 30,						Six Months Ended June 30,
	2008(1)			2007(1)			2008(1)			2007(1)
Net loss	$	(3,485	)	$	(18,675	)	$	(58,578	)	$	(53,815	)
Minority interest		-			(642	)		-			(511	)
Benefit for income taxes		(2,771	)		(12,715	)		(32,658	)		(33,283	)
Equity in loss of unconsolidated ventures		935			601			1,108			2,054
Loss on extinguishment of debt		231			803			3,052			803
Other non-operating loss (income)		493			(238	)		493			(238	)
Interest expense:
Debt		30,635			27,953			59,622			53,192
Capitalized lease obligation		6,789			7,125			13,673			15,338
Amortization of deferred financing costs		2,379			2,109			3,936			3,727
Change in fair value of derivatives and amortization		(36,743	)		(17,619	)		8,890			(12,838	)
Interest income		(3,160	)		(1,563	)		(4,786	)		(3,383	)
Loss from operations		(4,697	)		(12,861	)		(5,248	)		(28,954	)
Depreciation and amortization		68,876			82,471			140,816			155,455
Straight-line lease expense		5,215			6,028			10,966			12,364
Amortization of deferred gain		(1,086	)		(1,085	)		(2,171	)		(2,170	)
Amortization of entrance fees		(5,129	)		(4,641	)		(11,820	)		(8,900	)
Non-cash compensation expense		8,621			8,192			16,631			19,012
Entrance fee receipts(2)		12,597			8,790			18,869			16,964
Entrance fee disbursements		(4,843	)		(4,089	)		(8,475	)		(10,404	)
Adjusted EBITDA	$	79,554		$	82,805		$	159,568		$	153,367

(1)

The calculation of Adjusted EBITDA includes merger, integration, and certain other non-recurring expenses, as well as acquisition transition costs, totaling $2.4 million and $3.9 million for the three months ended June 30, 2008 and 2007, respectively, and $5.3 million and $7.0 million for the six months ended June 30, 2008 and 2007, respectively. Additionally, the calculation of Adjusted EBITDA for the three months and six months ended June 30, 2008 includes the effect of the $8.0 million reserve established for certain litigation.

(2)	Includes the receipt of refundable and non-refundable entrance fees.

Cash From Facility Operations

Cash From Facility Operations (CFFO) 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 CFFO 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.

We believe CFFO is useful to investors in evaluating our liquidity for the following reasons:

·	It provides an assessment of our ability to facilitate meeting current financial and liquidity goals.

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·	To assess our ability to:

(i)	service our outstanding indebtedness;

(ii)	pay dividends; and

(iii)

make regular recurring capital expenditures to maintain and improve our facilities.

The table below reconciles CFFO from net cash provided by operating activities for the three and six months ended June 30, 2008 and 2007 (in thousands):

	Three Months Ended June 30,						Six Months Ended June 30,
	2008(1)			2007(1)(2)			2008(1)			2007(1)(2)

Net cash provided by operating activities	$	36,095		$	56,082		$	76,724		$	84,910
Changes in operating assets and liabilities		6,546			(6,797	)		11,241			5,342
Refundable entrance fees received(3)		7,420			4,064			10,912			8,322
Entrance fee refunds disbursed		(4,843	)		(4,089	)		(8,475	)		(10,404	)
Recurring capital expenditures, net		(6,614	)		(7,049	)		(12,651	)		(13,274	)
Lease financing debt amortization with fair market value or no purchase options		(1,662	)		(1,422	)		(3,287	)		(2,718	)
Reimbursement of operating expenses and other		(269	)		812			794			1,942
Cash From Facility Operations	$	36,673		$	41,601		$	75,258		$	74,120

(1)

The calculation of CFFO includes merger, integration, and certain other non-recurring expenses, as well as acquisition transition costs, totaling $2.4 million and $3.9 million for the three months ended June 30, 2008 and 2007, respectively and $5.3 million and $7.0 million for the six months ended June 30, 2008 and 2007, respectively. Additionally, the calculation of CFFO for the three months and six months ended June 30, 2008 includes the effect of the $8.0 million reserve established for certain litigation.

(2)	The June 30, 2007 amounts have been reclassified to conform to the modified definition of CFFO used for the current period.

(3)

Total entrance fee receipts for the three months ended June 30, 2008 and 2007 were $12.6 million and $8.8 million, respectively, including $5.2 million and $4.7 million, respectively, of non-refundable entrance fee receipts included in net cash provided by operating activities. Total entrance fee receipts for the six months ended June 30, 2008 and 2007 were $18.9 million and $17.0 million, respectively, including $8.0 million and $8.6 million, respectively, of non-refundable entrance fee receipts included in net cash provided by operating activities.

The calculation of CFFO per outstanding common share is based on outstanding common shares at the end of the period, excluding any unvested restricted shares.

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.

We believe Facility Operating Income is useful to investors in evaluating our facility operating performance for the following reasons:

·	It is helpful in identifying trends in our day-to-day facility performance;

·	It provides an assessment of our revenue generation and expense management; and

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·	It provides an indicator to determine if adjustments to current spending decisions are needed.

The table below reconciles Facility Operating Income from net loss for the three and six months ended June 30, 2008 and 2007 (in thousands):

	Three Months Ended June 30,						Six Months Ended June 30,
	2008			2007			2008			2007

Net loss	$	(3,485	)	$	(18,675	)	$	(58,578	)	$	(53,815	)
Minority interest		-			(642	)		-			(511	)
Benefit for income taxes		(2,771	)		(12,715	)		(32,658	)		(33,283	)
Equity in loss of unconsolidated ventures		935			601			1,108			2,054
Loss on extinguishment of debt		231			803			3,052			803
Other non-operating loss (income)		493			(238	)		493			(238	)
Interest expense:
Debt		30,635			27,953			59,622			53,192
Capitalized lease obligation		6,789			7,125			13,673			15,338
Amortization of deferred financing costs		2,379			2,109			3,936			3,727
Change in fair value of derivatives and amortization		(36,743	)		(17,619	)		8,890			(12,838	)
Interest income		(3,160	)		(1,563	)		(4,786	)		(3,383	)
Loss from operations		(4,697	)		(12,861	)		(5,248	)		(28,954	)
Depreciation and amortization		68,876			82,471			140,816			155,455
Facility lease expense		67,199			67,176			135,011			135,657
General and administrative (including
non-cash stock compensation expense)		40,297			35,758			76,685			76,411
Amortization of entrance fees(1)		(5,129	)		(4,641	)		(11,820	)		(8,900	)
Management fees		(2,264	)		(1,788	)		(4,077	)		(3,284	)
Facility Operating Income	$	164,282		$	166,115		$	331,367		$	326,385

(1)	Entrance fee sales, net of refunds paid, provided $7.8 million and $4.7 million of cash for the three months ended June 30, 2008 and 2007, respectively, and $10.4 million and $6.6 million of cash for the six months ended June 30, 2008 and 2007, respectively.

Operating Data

The same store data, which includes for the twelve month period the effect of the historical results of the ARC facilities, for the three and twelve months ended June 30, 2008 and 2007 (in thousands) is presented below:

	Three months ended June 30,									Twelve months ended June 30,
	2008			2007			% Change			2008(1)			2007			% Change
Revenue	$	444,315		$	427,555			3.9	%	$	1,763,154		$	1,664,558			5.9	%
Operating Expense		286,889			268,624			6.8	%		1,141,923			1,062,229			7.5	%
Facility Operating Income	$	157,426		$	158,931			(0.9	%)	$	621,231		$	602,329			3.1	%
Facility Operating Margin		35.4	%		37.2	%		(1.7	%)		35.2	%		36.2	%		(1.0	%)

# Locations		509			509						509			509
Avg. Occupancy		89.0	%		91.1	%		(2.2	%)		90.2	%		91.5	%		(1.3	%)
Avg. Mo. Revenue/unit	$	3,771		$	3,543			6.4	%	$	3,691		$	3,435			7.5	%

(1)

Includes $7.0 million of charges to facility operating expenses in the quarter ended December 31, 2007, which relates to the Company’s desire to conform its policies across all of its platforms including $5.9 million of estimated uncollectible accounts and $1.1 million of accounting conformity adjustments pertaining to inventory and certain accrual policies.

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Excluding the $7.0 million of charges relating to integration-related accounting items in the fourth quarter of 2007, the same store data is as follows:

	Three months ended June 30,									Twelve months ended June 30,
	2008			2007			% Change			2008			2007			% Change
Revenue	$	444,315		$	427,555			3.9	%	$	1,763,154		$	1,664,558			5.9	%
Operating Expense		286,889			268,624			6.8	%		1,134,878			1,062,229			6.8	%
Facility Operating Income	$	157,426		$	158,931			(0.9	%)	$	628,276		$	602,329			4.3	%
Facility Operating Margin		35.4	%		37.2	%		(1.7	%)		35.6	%		36.2	%		(0.6	%)

Our facility breakdown at June 30, 2008 was as follows:

Ownership Type	Number of Facilities		Number of Units/Beds		Percentage of Q2 2008 Revenues			Percentage of Q2 2008 Facility Operating Income
Owned		171		18,768		39.6	%		36.8	%
Leased		358		28,783		59.9	%		61.9	%
Managed		21		4,296		0.5	%		1.3	%
Total		550		51,847		100.0	%		100.0	%

Operating Type
Retirement Centers		87		15,878		29.1	%		35.2	%
Assisted Living		410		21,095		43.5	%		43.0	%
CCRCs		32		10,578		26.9	%		20.5	%
Managed		21		4,296		0.5	%		1.3	%
Total		550		51,847		100.0	%		100.0	%

Our capital expenditures for the three and six months ended June 30, 2008 and 2007 were as follows (in thousands):

	Three Months Ended June 30,						Six Months Ended June 30,
	2008			2007			2008			2007
Type
Recurring	$	7,495		$	7,921		$	14,692		$	14,146
Reimbursements		(881	)		(872	)		(2,041	)		(872	)
Net recurring		6,614			7,049			12,651			13,274
Corporate(1)		3,425			3,219			7,289			9,198
EBITDA-enhancing(2)		11,089			14,619			21,110			25,010
Development(3)		19,446			8,843			39,403			20,579
Net Total Capital Expenditures	$	40,574		$	33,730		$	80,453		$	68,061

(1)	Corporate primarily includes capital expenditures for information technology systems and equipment.

(2)	EBITDA-enhancing capital expenditures generally represent unusual or non-recurring capital items and/or major renovations.

(3)	Development capital expenditures primarily relate to the facility expansion and de novo development program.

Our debt amortization for the three months ended June 30, 2008 and 2007 was as follows (in thousands):

	Three Months Ended June 30,
	2008		2007
Type
Scheduled Debt Amortization	$	391	$	454
Lease Financing Debt Amortization - FMV or no Purchase Option	$	1,662	$	1,422
Lease Financing Debt Amortization - Bargain Purchase Option		2,382		2,068
Total Debt Amortization	$	4,435	$	3,944

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Our ancillary services data for the last five quarters was as follows:

	June 30, 2008		March 31, 2008		December 31, 2007		September 30, 2007		June 30, 2007		March 31, 2007

Units served by therapy staff:
Legacy Brookdale		19,505		18,565		17,101		15,483		14,245		7,442
Legacy ARC		12,761		12,761		12,716		12,716		12,716		12,680
Total		32,266		31,326		29,817		28,199		26,961		20,122

Therapy clinics		368		352		335		323		302		260
Therapy staff		1,876		1,741		1,601		1,516		1,377		1,139

Units served by Home Health agencies		10,907		8,294		7,405		7,405		6,251		1,477

Facility-level Mortgage Debt Maturities

We have contractual extension options on the majority of our facility-level mortgage debt maturing in 2009 and 2010. Assuming we exercise those contractual extension options, the principal amount of our facility-level mortgage loans maturing during 2009 and 2010 would be as follows:

(dollars in thousands)
Twelve Months Ending December 31, 2009	$	49,422
Twelve Months Ending December 31, 2010		26,400
Total	$	75,822

In addition to the foregoing maturities, the Company’s corporate line of credit is scheduled to mature on May 15, 2009. As of June 30, 2008, $50.0 million was drawn on the revolving loan facility and $115.8 million of letters of credit had been issued under the line of credit.

Segment Reporting

The Company currently has four reportable segments: retirement centers; assisted living; CCRCs; and management services. As previously disclosed, during the fourth quarter of 2007, the Company completed an internal reorganization which was intended to further improve the segment financial results and to more accurately reflect the underlying product offering of each segment. The reorganization did not change the Company’s reportable segments, but it did impact the revenues and costs reported within each segment. The change included the movement of communities between the retirement centers, assisted living and CCRCs segments resulting in a net increase of 16 communities to the retirement centers segment and a net decrease of 16 communities to the CCRCs segment. These changes have previously been reflected in the Company’s results for the year ended December 31, 2007 and the three months ended March 31, 2008. Set forth below is certain segment financial and operating data for each of the quarters in 2006 and 2007 that has been restated for comparative purposes.

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(dollars in thousands, except average monthly revenue per unit/bed)

	Q1 2006		Q2 2006		Q3 2006		Q4 2006		Q1 2007		Q2 2007		Q3 2007		Q4 2007
Revenue
Resident fees:
Retirement Centers	94,641		99,456		121,174		131,221		132,866		137,148		138,009		139,572
Assisted Living	108,420		143,979		176,120		186,707		194,424		199,388		200,157		201,324
CCRCs	17,975		24,407		88,323		111,873		118,048		120,086		124,935		126,550
Total resident fees	221,036		267,842		385,617		429,801		445,338		456,622		463,101		467,446
Management fees	1,147		585		1,426		2,459		1,496		1,788		1,493		2,012
Total revenue	222,183		268,427		387,043		432,260		446,834		458,410		464,594		469,458
Expense
Facility operating expense:
Retirement Centers	54,249		57,697		68,953		74,562		74,771		75,267		76,485		79,612
Assisted Living	69,424		85,694		113,136		116,786		123,312		126,763		128,907		133,931
CCRCs	13,272		17,890		63,103		85,035		82,726		83,836		89,605		95,722
Total facility operating expense	136,945		161,281		245,192		276,383		280,809		285,866		294,997		309,265

Total BSL
Number of communities	403		453		545		546		546		548		550		550
Total units/beds operated	30,770		34,346		51,090		51,271		51,421		51,616		52,082		52,086
Owned/leased communities units/beds	28,806		33,045		46,566		46,723		46,982		47,421		47,553		47,670
Owned/leased communities occupancy rate:
Period end	90.0	%	90.2	%	91.3	%	91.1	%	91.0	%	90.8	%	90.8	%	90.6	%
Weighted average	89.5	%	90.0	%	91.1	%	91.0	%	90.8	%	90.7	%	90.6	%	90.6	%
Average monthly revenue per unit/bed	3,116		3,098		3,288		3,380		3,498		3,562		3,609		3,640

Retirement Centers Product Type:
Number of communities	67		70		84		85		85		86		86		87
Total units/beds operated	11,510		12,008		15,572		15,741		15,741		15,869		15,869		15,990
Owned/leased communities occupancy rate:
Period end	92.2	%	92.2	%	93.1	%	92.4	%	92.7	%	93.1	%	91.9	%	91.7	%
Weighted average	92.2	%	92.1	%	92.8	%	92.4	%	92.8	%	92.8	%	92.2	%	91.7	%
Average monthly revenue per unit/bed	2,878		2,923		2,900		2,959		3,016		3,110		3,148		3,194

Assisted Living Product Type:
Number of communities	320		367		405		405		406		409		409		409
Total units/beds operated	14,472		17,449		20,769		20,762		20,874		21,088		21,091		21,087
Owned/leased communities occupancy rate:
Period end	88.9	%	89.8	%	90.3	%	89.7	%	89.7	%	89.2	%	90.0	%	89.7	%
Weighted average	88.7	%	90.0	%	90.1	%	89.9	%	89.6	%	89.4	%	89.9	%	90.0	%
Average monthly revenue per unit/bed	3,176		3,126		3,274		3,334		3,460		3,513		3,520		3,542

CCRCs Product Type:
Number of communities	6		9		32		32		32		32		32		32
Total units/beds operated	2,824		3,588		10,225		10,220		10,367		10,464		10,593		10,593
Owned/leased communities occupancy rate:
Period end	86.2	%	85.1	%	90.6	%	91.8	%	90.8	%	90.5	%	90.8	%	90.8	%
Weighted average	80.6	%	81.6	%	90.4	%	90.4	%	90.0	%	90.1	%	89.7	%	90.0	%
Average monthly revenue per unit/bed	3,717		3,737		4,095		4,196		4,400		4,434		4,565		4,588

Managed Properties:
Number of communities	10		7		24		24		23		21		23		22
Total units/beds operated	1,964		1,301		4,524		4,548		4,439		4,195		4,529		4,416
Occupancy rate:
Period end	92.7	%	92.8	%	92.0	%	92.6	%	92.3	%	91.3	%	83.2	%	83.1	%
Weighted average	92.0	%	94.1	%	92.1	%	92.4	%	91.6	%	90.7	%	82.9	%	83.4	%

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