EMERITUS ANNOUNCES OPERATING RESULTS FOR
FOURTH QUARTER AND FULL YEAR 2012
SEATTLE, WA, February 28, 2013 - Emeritus Corporation (NYSE: ESC), a national provider of senior living services, today announced its fourth quarter and full year 2012 results.
Operating Summary for the Full Year 2012 Compared to the Full Year 2011
| · | Community and management fee revenue increased $133.3 million, or 10.6%, to $1.39 billion |
| · | Adjusted EBITDAR increased $43.3 million, or 12.5%, to $389.8 million |
| · | CFFO per share, as adjusted, increased 13.4% to $1.69 |
| · | Total Portfolio Same Community (as defined below) average monthly revenue per occupied unit increased 1.5% to $3,924 |
| · | Total Portfolio Same Community average occupancy increased 100 basis points to 86.4% |
| · | Total Portfolio Same Community operating margin increased 100 basis points to 32.2% |
Operating Summary for Fourth Quarter 2012 Compared to Fourth Quarter 2011
| · | Community and management fee revenue increased $88.0 million, or 27.1%, to $412.1 million |
| · | Adjusted EBITDAR increased $27.7 million, or 31.3%, to $116.2 million |
| · | CFFO per share, as adjusted, increased 25.0% to $0.40 |
| · | Total Portfolio Same Community average monthly revenue per occupied unit increased 3.0% to $3,972 |
| · | Total Portfolio Same Community average occupancy increased 50 basis points to 86.7% |
| · | Total Portfolio Same Community operating margin increased 240 basis points to 33.7% |
Granger Cobb, President and Chief Executive Officer commented, “2012 was a year of significant accomplishments for Emeritus – we experienced progressive rate growth throughout the year, which drove compelling CFFO growth of over 13%. In addition, we invested to a greater degree in capital improvements to our communities and leadership training throughout the organization. These investments combined with the significant strategic transactions completed in the fourth quarter have positioned us for even stronger growth in the future as evidenced by our expectation to double our CFFO growth rate in 2013.”
2012 Annual Consolidated Results
Community and management fee revenues increased $133.3 million, or 10.6%, to $1.39 billion in 2012, compared to the prior year. The increase in revenues was partially due to the Company’s fourth quarter 2012 lease and ownership acquisition of 138 communities that we previously managed for a joint venture comprised of Emeritus, affiliates of Blackstone Real Estate Partners VI (“Blackstone”), certain former tenants in common, and an investment fund affiliated with Dan Baty, the Company’s chairman (the “Blackstone JV”). The increase in revenues was also attributable to the Company’s fourth quarter 2012 acquisition of Nurse on Call, Inc. (“NOC”) and 2011 mid-year acquisitions that were included in consolidated results for a full year in 2012. Revenues for those consolidated communities we have continuously operated from January 1, 2011 to December 31, 2012 (“Consolidated Same Community”) increased $19.5 million between the periods, driven primarily by rate growth. As of December 31, 2012, the consolidated Emeritus portfolio consisted of 461 communities, of which 293 communities are included in the Company’s definition of Consolidated Same Community.
Total average monthly revenue per occupied unit for the consolidated portfolio increased 1.6% to $4,127 in 2012 compared to 2011. Over the same period, total average occupancy for the consolidated portfolio increased 50 basis points to 86.8%. These increases in rate and occupancy were due primarily to improvements in the Consolidated Same Community portfolio, which represented over 80% of the average consolidated communities during the year. As a result of the Blackstone JV transaction, we added 129 leased communities and nine owned communities to our consolidated portfolio beginning in the fourth quarter of 2012, and four remaining Blackstone JV communities are expected to be added in 2013 as leased communities. All but five of these communities have been managed by Emeritus since the second half of 2010. For all communities continuously under Emeritus management from January 1, 2011 to December 31, 2012 (“Total Portfolio Same Community”), monthly revenue per occupied unit increased 1.5% from 2011 to 2012, and average occupancy improved by 100 basis points over the same period.
Community operating expenses increased $72.5 million to $919.6 million in 2012 compared to $847.2 million in 2011, due primarily to acquisition-related activities (net of dispositions) between the periods. Community operating expenses in the Consolidated Same Community portfolio were held to an increase of 0.8%, or $6.4 million; normal inflationary and certain other expense increases were offset somewhat by lower utilities expenses and improved efficiencies in the Company’s healthcare self-insurance program.
Community operating income increased $63.9 million, or 16.5%, to $450.4 million in 2012, compared to the prior year. Community operating income margin increased 160 basis points to 32.9% in 2012, compared to 31.3% in the prior-year period, reflecting improved occupancy and rate, combined with effective expense controls, as well as decreased self-insurance reserve adjustments in 2012. Total Portfolio Same Community operating margin increased 100 basis points to 32.2% in 2012, compared to 31.2% in 2011; the larger percentage increase in this total portfolio was due to accelerated improved performance in the former Blackstone JV communities.
Excluding noncash stock-based compensation expenses, senior living general and administrative expenses as a percent of total operated senior living community revenue (which includes revenues of managed communities but excludes reimbursed costs of managed communities and ancillary services revenues) was held flat at 4.8% for 2012, consistent with the prior year.
Adjusted EBITDAR in 2012 increased $43.3 million, or 12.5%, to $389.8 million, with the increase primarily driven by the increase in community operating income. Cash from facility operations (CFFO) per share, as adjusted, increased 13.4% to $1.69 per share, compared to $1.49 per share in 2011.
2012 Fourth Quarter Consolidated Results
Community and management fee revenues increased $88.0 million, or 27.1%, to $412.1 million in the fourth quarter of 2012, compared to $324.1 million in the fourth quarter of 2011. The increase in revenues resulted primarily from the Company’s fourth quarter 2012 lease and ownership acquisition of 138 communities that we previously managed for the Blackstone JV and the acquisition of NOC. Additionally, Consolidated Same Community revenues increased $9.4 million in the fourth quarter of 2012, primarily as a result of improved rate per unit.
Total average monthly revenue per occupied unit for the consolidated portfolio increased to $4,077 in the fourth quarter of 2012 from $4,073 in the fourth quarter of 2011. The consolidated rate increase was somewhat muted by the acquisition of the Blackstone JV communities, which as a group has lower average rates than the legacy Emeritus communities. In the fourth quarter of 2012, total average occupancy for the consolidated portfolio increased 20 basis points to 86.8% compared to 86.6% in the fourth quarter of 2011. The increase was due primarily to improved occupancy in the Consolidated Same Community portfolio. Total Portfolio Same
Community monthly revenue per occupied unit increased 3.0% in the fourth quarter of 2012, compared to the fourth quarter of the prior year, and average occupancy improved by 60 basis points over the same period.
Community operating expenses increased $56.3 million to $275.7 million in the fourth quarter of 2012 compared to $219.4 million in the 2011 period, due primarily to acquisition-related activities. Community operating expenses in the Consolidated Same Community portfolio were held to an increase of 0.5%, or $1.0 million; normal inflationary and certain other expense increases were offset somewhat by improved efficiencies in the Company’s healthcare self-insurance program as well as lower bad debt expense. The fourth quarter of 2012 included $1.5 million in non-recurring legal settlement costs.
Community operating income increased $34.3 million, or 34.4%, to $133.9 million in the fourth quarter of 2012, compared to the fourth quarter of 2011. Community operating income margin increased 150 basis points to 32.7% in the fourth quarter, compared to 31.2% in the prior-year period, reflecting improved occupancy and rate, combined with effective expense controls. Total Portfolio Same Community operating margin increased 240 basis points to 33.7% in 2012, compared to 31.3% in 2011; the larger percentage increase in this total portfolio was due to accelerated improved performance in the former Blackstone JV communities.
Excluding noncash stock-based compensation expenses, senior living general and administrative expenses as a percent of total operated senior living community revenue was 5.0% in the fourth quarter of 2012, compared to 4.9% in the fourth quarter of 2011.
For the fourth quarter of 2012, Adjusted EBITDAR increased $27.7 million, or 31.3%, to $116.2 million, with the increase primarily driven by the increase in community operating income. CFFO per share, as adjusted, increased 25.0% to $0.40 per share, compared to $0.32 per share in the fourth quarter of 2011.
2013 Guidance Update
The Company provides guidance for the Company’s existing portfolio and excludes future acquisitions and dispositions.
The Company’s guidance for 2013 is as follows:
| · | Community and management fee revenue in the range of $1.85 billion to $1.90 billion |
| · | Routine capital expenditures in the range of $28.0 million to $30.0 million |
| · | Senior living general and administrative expenses as a percent of total senior living operated revenue of approximately 4.9%, excluding non-cash stock-based compensation expenses |
| · | CFFO, as adjusted, in the range of $2.10 to $2.20 per share |
In addition to annual guidance, the Company expects CFFO, as adjusted, in the first quarter of 2013 to be in the range of $0.41 to $0.45 per share.
Recent Developments
In February 2013, NOC borrowed $50.0 million to finance that company’s expansion and refinance certain existing indebtedness of Emeritus. The loan has a four-year term, and the interest rate is equal to LIBOR plus 4.75% initially, decreasing to 4.25% and 3.75% over the term, depending upon the ratio of the principal balance to NOC’s EBITDA. Principal reductions of $1.875 million are due quarterly.
Webcast and Conference Call
The Company will host a webcast and conference call on Thursday, February 28, 2013, at 5:00 P.M. Eastern Time to discuss its financial results for the fourth quarter of 2012.
The conference call will be webcast live over the internet from the Company’s web site at www.emeritus.com under the “Investors” section. The conference call can also be accessed by dialing (877) 705-6003, or for international participants (201) 493-6725. A replay of the conference call will be available after 8:00 P.M. Eastern Time on Thursday, February 28, 2013, until midnight Eastern Time on Thursday, March 7, 2013. The dial-in numbers for the replay are (877) 870-5176 or, for international participants, (858) 384-5517. To access the telephonic replay, enter the conference ID 408366.
Non-GAAP Financial Measures
Adjusted EBITDA/EBITDAR and CFFO are financial measures of operating performance that are not calculated in accordance with U.S. generally accepted accounting principles (“GAAP”). The Company believes that these non-GAAP measures are useful in identifying trends in day-to-day performance because they exclude items that are of little or no significance to operations and provide indicators to management of progress in achieving optimal operating performance. In addition, these measures are used by many research analysts and investors to evaluate the performance and the value of companies in the senior living industry. The Company strongly urges you to review the reconciliation of net loss to Adjusted EBITDA/EBITDAR and the reconciliation of net cash provided by operating activities to CFFO, provided below, along with the Company’s consolidated balance sheets, statements of operations, and statements of cash flows. The Company defines Adjusted EBITDA/EBITDAR and CFFO and provides other information about these non-GAAP measures in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012, to be filed with the Securities and Exchange Commission.
The table below shows the reconciliation of net loss to Adjusted EBITDA/EBITDAR for the three months and year ended December 31, 2012 and 2011 (in thousands):
| | | Three Months Ended | | | Year Ended | |
| | | December 31, | | | December 31, | |
| | | 2012 | | | 2011 | | | 2012 | | | 2011 | |
| Net loss | | $ | (27,525 | ) | | $ | (27,976 | ) | | $ | (85,075 | ) | | $ | (72,263 | ) |
| Depreciation and amortization | | | 42,605 | | | | 32,307 | | | | 140,629 | | | | 122,372 | |
| Interest income | | | (105 | ) | | | (74 | ) | | | (408 | ) | | | (429 | ) |
| Interest expense | | | 60,862 | | | | 41,418 | | | | 176,945 | | | | 157,262 | |
| Net equity losses for unconsolidated joint ventures | | | 76 | | | | 1,829 | | | | 576 | | | | 3,081 | |
| Provision for income taxes | | | (2,078 | ) | | | 362 | | | | (1,158 | ) | | | 1,019 | |
| Loss from discontinued operations | | | – | | | | 3,915 | | | | 7,705 | | | | 21,570 | |
| Amortization of above/below market rents | | | 1,309 | | | | 1,754 | | | | 6,299 | | | | 7,532 | |
| Amortization of deferred gains | | | (264 | ) | | | (274 | ) | | | (1,046 | ) | | | (1,125 | ) |
| Stock-based compensation | | | 2,727 | | | | 1,224 | | | | 11,046 | | | | 8,106 | |
| Change in fair value of derivative financial | | | | | | | | | | | | | | | | |
| instruments | | | 29 | | | | (1,045 | ) | | | 948 | | | | (3,081 | ) |
| Deferred revenue | | | (620 | ) | | | 316 | | | | (1,375 | ) | | | 2,601 | |
| Deferred straight-line rent | | | 2,859 | | | | 1,663 | | | | 6,080 | | | | 8,792 | |
| Contract buyout costs | | | – | | | | 1,586 | | | | – | | | | 7,842 | |
| Impairment of long-lived assets | | | – | | | | – | | | | 2,135 | | | | – | |
| Gain on sale of assets | | | – | | | | (73 | ) | | | – | | | | (73 | ) |
| Gain on sale of investments | | | – | | | | – | | | | – | | | | (1,569 | ) |
| Acquisition gain | | | – | | | | – | | | | – | | | | (42,110 | ) |
| Acquisition, development, and financing expenses | | | 3,337 | | | | (895 | ) | | | 6,109 | | | | 2,403 | |
| Self-insurance reserve adjustments | | | 3,560 | | | | 4,133 | | | | 5,996 | | | | 15,911 | |
| Adjusted EBITDA | | | 86,772 | | | | 60,170 | | | | 275,406 | | | | 237,841 | |
| Community lease expense, net | | | 29,446 | | | | 28,321 | | | | 114,382 | | | | 108,627 | |
| Adjusted EBITDAR | | $ | 116,218 | | | $ | 88,491 | | | $ | 389,788 | | | $ | 346,468 | |
The following table shows the reconciliation of net cash provided by operating activities to CFFO, and CFFO as adjusted for transaction costs, unusual income tax items, and self-insurance reserves related to prior years (in thousands):
| | | Three Months Ended | | | Year Ended | |
| | | December 31, | | | December 31, | |
| | | 2012 | | | 2011 | | | 2012 | | | 2011 | |
| Net cash provided by operating activities | | $ | 5,937 | | | $ | 10,349 | | | $ | 116,558 | | | $ | 74,102 | |
| Changes in operating assets and liabilities, net | | | 17,005 | | | | 6,420 | | | | (14,735 | ) | | | (3,812 | ) |
| Contract buyout costs | | | – | | | | 1,586 | | | | – | | | | 7,842 | |
| Repayment of capital lease and financing obligations | | | (5,432 | ) | | | (3,793 | ) | | | (17,882 | ) | | | (14,249 | ) |
| Recurring capital expenditures | | | (9,303 | ) | | | (3,667 | ) | | | (23,947 | ) | | | (17,299 | ) |
| Distributions from unconsolidated joint ventures | | | 161 | | | | 55 | | | | 1,177 | | | | 1,519 | |
| Cash From Facility Operations | | | 8,368 | | | | 10,950 | | | | 61,171 | | | | 48,103 | |
| Transaction costs | | | 3,030 | | | | (845 | ) | | | 5,510 | | | | 1,984 | |
| Unusual income tax items (1) | | | 3,048 | | | | – | | | | 3,048 | | | | – | |
| Self-insurance reserve adjustments, prior years | | | 3,560 | | | | 4,133 | | | | 5,996 | | | | 15,911 | |
| Cash From Facility Operations, as adjusted | | $ | 18,006 | | | $ | 14,238 | | | $ | 75,725 | | | $ | 65,998 | |
| | | | | | | | | | | | | | | | | |
| CFFO per share | | $ | 0.19 | | | $ | 0.25 | | | $ | 1.37 | | | $ | 1.09 | |
| CFFO per share, as adjusted | | | 0.40 | | | | 0.32 | | | | 1.69 | | | | 1.49 | |
| (1) | Consists of state tax expense related to the Company’s portion of taxable gain on the sale of the Blackstone JV communities |
Recurring capital expenditures are actual costs incurred to maintain the Company’s communities for their intended business purpose and exclude expenditures for acquisitions, development, expansions and general corporate purposes.
For a more detailed understanding of Emeritus, please refer to the Company’s Annual Report on Form 10-K for the year ended December 31, 2012, to be filed with the SEC, or visit the Company’s web site at www.emeritus.com to obtain copies.
About Emeritus
Emeritus Senior Living is the nation’s largest assisted living and memory care provider, with the ability to serve nearly 50,000 residents. Over 30,000 employees support more than 480 communities throughout 45 states coast to coast. Emeritus offers the spectrum of senior residential choices, care options and life enrichment programs that fulfill individual needs and promote purposeful living throughout the aging process. Its experts provide insights on senior living, care, wellness, brain health, caregiving and family topics at www.Emeritus.com, which also offers details on the organization’s services. Emeritus’ common stock is traded on the New York Stock Exchange under the symbol ESC.
“Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995: A number of the matters and subject areas discussed in this report that are not historical or current facts deal with potential future circumstances, operations, and prospects. The discussion of such matters and subject areas is qualified by the inherent risks and uncertainties surrounding future expectations generally, and also may materially differ from our actual future experience as a result of such factors as: the effects of competition and economic conditions on the occupancy levels in our communities; our ability under current market conditions to maintain and increase our resident charges without adversely affecting occupancy levels; successfully integrating home health agency services into our senior living communities; uncertainties regarding government-reimbursement programs for our services; increases in interest costs as a result of refinancings; our ability to control community operation expenses without adversely affecting the level of occupancy and the level of resident
charges; our ability to generate cash flow sufficient to service our debt and other fixed payment requirements; our ability to find sources of financing and capital on satisfactory terms to meet our cash requirements to the extent that they are not met by operations, and uncertainties related to professional liability and workers’ compensation claims. We have attempted to identify, in context, certain of the factors that we currently believe may cause actual future experience and results to differ from our current expectations regarding the relevant matter or subject area. These and other risks and uncertainties are detailed in our reports filed with the Securities and Exchange Commission, including “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2012 filed with the SEC. The Company undertakes no obligation to update the information provided herein.
Contact:
Investor Relations
(206) 298-2909
Media Contacts:
Liz Brady
Liz.brady@icrinc.com
646-277-1226
Sari Martin
Sari.martin@icrinc.com
203-682-8345
EMERITUS CORPORATION
CONSOLIDATED BALANCE SHEETS
(unaudited)
(In thousands, except share data)
| ASSETS | |
| | | | | | | |
| | | December 31, | | | December 31, | |
| | | 2012 | | | 2011 | |
| Current Assets: | | | | | | |
| Cash and cash equivalents | | $ | 59,795 | | | $ | 43,670 | |
| Short-term investments | | | 4,910 | | | | 3,585 | |
| Trade accounts receivable, net of allowance of $7,179 and $2,294 | | | 53,138 | | | | 26,195 | |
| Other receivables | | | 38,607 | | | | 16,117 | |
| Tax, insurance, and maintenance escrows | | | 23,813 | | | | 20,501 | |
| Prepaid insurance expense | | | 51,742 | | | | 36,020 | |
| Deferred tax asset | | | 33,781 | | | | 19,934 | |
| Other prepaid expenses and current assets | | | 12,185 | | | | 8,140 | |
| Total current assets | | | 277,971 | | | | 174,162 | |
| Investments in unconsolidated joint ventures | | | 2,513 | | | | 15,428 | |
| Property and equipment, net of accumulated depreciation of $533,710 and $407,952 | | | 4,011,884 | | | | 2,355,425 | |
| Restricted deposits | | | 23,226 | | | | 16,427 | |
| Goodwill | | | 186,756 | | | | 118,725 | |
| Other intangible assets, net of accumulated amortization of $47,547 and $48,722 | | | 131,971 | | | | 100,873 | |
| Other assets, net | | | 26,429 | | | | 29,288 | |
| Total assets | | $ | 4,660,750 | | | $ | 2,810,328 | |
| | | | | | | | | |
| LIABILITIES, SHAREHOLDERS' EQUITY AND NONCONTROLLING INTEREST | | | | |
| | | | | | | | | |
| Current Liabilities: | | | | | | | | |
| Current portion of long-term debt | | $ | 49,381 | | | $ | 74,175 | |
| Current portion of capital lease and financing obligations | | | 25,736 | | | | 17,004 | |
| Trade accounts payable | | | 14,244 | | | | 7,959 | |
| Accrued employee compensation and benefits | | | 103,398 | | | | 70,936 | |
| Accrued interest | | | 8,467 | | | | 9,061 | |
| Accrued real estate taxes | | | 16,432 | | | | 11,791 | |
| Accrued professional and general liability | | | 50,752 | | | | 24,525 | |
| Other accrued expenses | | | 30,291 | | | | 19,477 | |
| Deferred revenue | | | 22,417 | | | | 16,348 | |
| Unearned rental income | | | 30,552 | | | | 22,965 | |
| Total current liabilities | | | 351,670 | | | | 274,241 | |
| Long-term debt obligations, less current portion | | | 1,558,936 | | | | 1,528,710 | |
| Capital lease and financing obligations, less current portion | | | 2,384,857 | | | | 619,088 | |
| Deferred gain on sale of communities | | | 3,743 | | | | 4,789 | |
| Deferred straight-line rent | | | 63,920 | | | | 61,481 | |
| Other long-term liabilities | | | 72,795 | | | | 39,283 | |
| Total liabilities | | | 4,435,921 | | | | 2,527,592 | |
| Redeemable noncontrolling interest | | | 10,105 | | | | – | |
| Commitments and contingencies | | | | | | | | |
| Shareholders' Equity and Noncontrolling Interest: | | | | | | | | |
| Preferred stock, $0.0001 par value. Authorized 20,000,000 shares, none issued | | | – | | | | – | |
| Common stock, $0.0001 par value. Authorized 100,000,000 shares, issued and | | | | | | | | |
| outstanding 45,814,988 and 44,989,861 shares | | | 5 | | | | 4 | |
| Additional paid-in capital | | | 839,511 | | | | 822,345 | |
| Accumulated deficit | | | (628,093 | ) | | | (543,249 | ) |
| Total Emeritus Corporation shareholders' equity | | | 211,423 | | | | 279,100 | |
| Noncontrolling interest | | | 3,301 | | | | 3,636 | |
| Total shareholders' equity | | | 214,724 | | | | 282,736 | |
| Total liabilities, shareholders' equity, and noncontrolling interest | | $ | 4,660,750 | | | $ | 2,810,328 | |
| | | | | | | | | |
EMERITUS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(In thousands, except per share data)
| | | Three Months Ended | | | Year Ended | |
| | | December 31, | | | December 31, | |
| | | 2012 | | | 2011 | | | 2012 | | | 2011 | |
| Revenues: | | | | | | | | | | | | |
| Community revenue | | $ | 409,594 | | | $ | 318,986 | | | $ | 1,370,019 | | | $ | 1,233,665 | |
| Management fees | | | 2,519 | | | | 5,159 | | | | 18,009 | | | | 21,105 | |
| Community and management fee revenue | | | 412,113 | | | | 324,145 | | | | 1,388,028 | | | | 1,254,770 | |
| Reimbursed costs incurred on behalf of managed communities | | | 25,450 | | | | 52,230 | | | | 180,048 | | | | 217,853 | |
| Total operating revenues | | | 437,563 | | | | 376,375 | | | | 1,568,076 | | | | 1,472,623 | |
| | | | | | | | | | | | | | | | | |
| Expenses: | | | | | | | | | | | | | | | | |
| Community operations | | | 275,648 | | | | 219,356 | | | | 919,635 | | | | 847,167 | |
| General and administrative | | | 26,133 | | | | 22,163 | | | | 95,625 | | | | 88,767 | |
| Transaction costs | | | 3,030 | | | | 741 | | | | 5,510 | | | | 9,826 | |
| Impairments of long-lived assets | | | – | | | | – | | | | 2,135 | | | | – | |
| Depreciation and amortization | | | 42,605 | | | | 32,306 | | | | 140,629 | | | | 122,372 | |
| Community leases | | | 33,614 | | | | 31,738 | | | | 126,761 | | | | 124,951 | |
| Costs incurred on behalf of managed communities | | | 25,450 | | | | 52,230 | | | | 180,048 | | | | 217,853 | |
| Total operating expenses | | | 406,480 | | | | 358,534 | | | | 1,470,343 | | | | 1,410,936 | |
| Operating income from continuing operations | | | 31,083 | | | | 17,841 | | | | 97,733 | | | | 61,687 | |
| | | | | | | | | | | | | | | | | |
| Other income (expense): | | | | | | | | | | | | | | | | |
| Interest income | | | 105 | | | | 74 | | | | 408 | | | | 429 | |
| Interest expense | | | (60,862 | ) | | | (41,418 | ) | | | (176,945 | ) | | | (157,262 | ) |
| Change in fair value of derivative financial instruments | | | (29 | ) | | | 1,045 | | | | (948 | ) | | | 3,081 | |
| Net equity losses for unconsolidated joint ventures | | | (76 | ) | | | (1,829 | ) | | | (576 | ) | | | (3,081 | ) |
| Acquisition gain | | | – | | | | – | | | | – | | | | 42,110 | |
| Other, net | | | 176 | | | | 588 | | | | 1,800 | | | | 3,362 | |
| Net other expense | | | (60,686 | ) | | | (41,540 | ) | | | (176,261 | ) | | | (111,361 | ) |
| | | | | | | | | | | | | | | | | |
| Loss from continuing operations before income taxes | | | (29,603 | ) | | | (23,699 | ) | | | (78,528 | ) | | | (49,674 | ) |
| Benefit of (provision for) income taxes | | | 2,078 | | | | (362 | ) | | | 1,158 | | | | (1,019 | ) |
| Loss from continuing operations | | | (27,525 | ) | | | (24,061 | ) | | | (77,370 | ) | | | (50,693 | ) |
| Loss from discontinued operations | | | – | | | | (3,915 | ) | | | (7,705 | ) | | | (21,570 | ) |
| Net loss | | | (27,525 | ) | | | (27,976 | ) | | | (85,075 | ) | | | (72,263 | ) |
| Net loss attributable to the noncontrolling interests | | | 33 | | | | 39 | | | | 231 | | | | 354 | |
| Net loss attributable to Emeritus Corporation | | | | | | | | | | | | | | | | |
| common shareholders | | $ | (27,492 | ) | | $ | (27,937 | ) | | $ | (84,844 | ) | | $ | (71,909 | ) |
| | | | | | | | | | | | | | | | | |
| Basic and diluted loss per common share attributable to | | | | | | | | | | | | | | | | |
| Emeritus Corporation common shareholders: | | | | | | | | | | | | | | | | |
| Continuing operations | | $ | (0.61 | ) | | $ | (0.54 | ) | | $ | (1.73 | ) | | $ | (1.14 | ) |
| Discontinued operations | | | - | | | | (0.09 | ) | | | (0.17 | ) | | | (0.49 | ) |
| | | $ | (0.61 | ) | | $ | (0.63 | ) | | $ | (1.90 | ) | | $ | (1.63 | ) |
| | | | | | | | | | | | | | | | | |
| Weighted average common shares outstanding: basic and diluted | | | 44,888 | | | | 44,437 | | | | 44,680 | | | | 44,312 | |
EMERITUS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(In thousands)
| | | Year Ended December 31, | |
| | | 2012 | | | 2011 | |
| Cash flows from operating activities: | | | | | | |
| Net loss | | $ | (85,075 | ) | | $ | (72,263 | ) |
| Adjustments to reconcile net loss to net cash provided by operating activities: | | | | | | | | |
| Depreciation and amortization | | | 140,629 | | | | 122,372 | |
| Amortization of above/below market rents | | | 6,299 | | | | 7,532 | |
| Amortization of deferred gains | | | (1,046 | ) | | | (1,125 | ) |
| Acquisition gain | | | – | | | | (42,110 | ) |
| Net loss on sale of assets | | | 527 | | | | 902 | |
| Impairment of long-lived assets | | | 8,430 | | | | 17,947 | |
| Loss on early extinguishment of debt | | | 866 | | | | 1,978 | |
| Gain on sale of investments | | | – | | | | (1,569 | ) |
| Amortization of loan fees | | | 3,219 | | | | 3,283 | |
| Allowance for doubtful receivables | | | 9,346 | | | | 8,090 | |
| Equity investment losses | | | 576 | | | | 3,081 | |
| Stock-based compensation | | | 11,046 | | | | 8,106 | |
| Change in fair value of derivative financial instruments | | | 948 | | | | (3,081 | ) |
| Deferred straight-line rent | | | 6,080 | | | | 8,792 | |
| Deferred revenue | | | (1,375 | ) | | | 2,601 | |
| Other | | | 1,353 | | | | 5,754 | |
| Changes in operating assets and liabilities: | | | | | | | | |
| Trade accounts receivable and other receivables | | | (13,704 | ) | | | (14,406 | ) |
| Prepaid expenses | | | (14,625 | ) | | | (5,106 | ) |
| Other assets | | | (1,281 | ) | | | (3,592 | ) |
| Trade accounts payable | | | 2,149 | | | | (793 | ) |
| Other accrued expenses and current liabilities | | | 41,878 | | | | 25,140 | |
| Security deposits and other long-term liabilities | | | 318 | | | | 2,569 | |
| Net cash provided by operating activities | | | 116,558 | | | | 74,102 | |
| Cash flows from investing activities: | | | | | | | | |
| Purchase of property and equipment | | | (37,212 | ) | | | (33,340 | ) |
| Acquisitions, net of cash acquired | | | (103,784 | ) | | | (180,228 | ) |
| Deposits | | | (409 | ) | | | 525 | |
| Proceeds from the sale of assets | | | 15,599 | | | | 40,947 | |
| Lease acquisition costs | | | (711 | ) | | | (368 | ) |
| Advances to affiliates and other managed communities, net | | | (1,108 | ) | | | (2,224 | ) |
| Distributions from unconsolidated joint ventures, net | | | 90,064 | | | | 2,028 | |
| Net cash used in investing activities | | | (37,561 | ) | | | (172,660 | ) |
| Cash flows from financing activities: | | | | | | | | |
| Sale of stock, net | | | 5,331 | | | | 2,804 | |
| Contribution from (distribution to) non-controlling interest | | | – | | | | (6,668 | ) |
| Decrease (increase) in restricted deposits | | | (180 | ) | | | (2,092 | ) |
| Purchase of interest rate cap contract | | | – | | | | (1,590 | ) |
| Debt issuance and other financing costs | | | (1,424 | ) | | | (10,063 | ) |
| Proceeds from long-term borrowings and financings | | | 21,783 | | | | 297,991 | |
| Repayment of long-term borrowings and financings | | | (70,500 | ) | | | (234,029 | ) |
| Repayment of capital lease and financing obligations | | | (17,882 | ) | | | (14,249 | ) |
| Net cash provided by (used in) financing activities | | | (62,872 | ) | | | 32,104 | |
| Net increase (decrease) in cash and cash equivalents | | | 16,125 | | | | (66,454 | ) |
| Cash and cash equivalents at the beginning of the year | | | 43,670 | | | | 110,124 | |
| Cash and cash equivalents at the end of the year | | $ | 59,795 | | | $ | 43,670 | |
| Emeritus Corporation | |
| Cash Lease and Interest Expense | |
| Three Months Ended December 31, 2012 | |
| (unaudited) | |
| (In thousands) | |
| | | | | | | | | | |
| | | | | | Projected | |
| | | Actual | | | Range | |
| | | | Q4-12 | | | | Q1-2013 | |
| | | | | | | | | | | | |
| Facility lease expense - GAAP | | $ | 33,614 | | | $ | 31,000 | | — | $ | 32,000 | |
| Less: | | | | | | | | | | | | |
| Straight-line rents (1) | | | (2,859 | ) | | | (300 | ) | — | | (400 | ) |
| Above/below market rents | | | (1,309 | ) | | | (1,200 | ) | — | | (1,300 | ) |
| Plus: | | | | | | | | | | | | |
| Capital lease interest - cash | | | 34,994 | | | | 46,000 | | — | | 47,000 | |
| Capital lease interest - noncash | | | (4,674 | ) | | | (7,000 | ) | — | | (8,000 | ) |
| Capital lease principal | | | 5,432 | | | | 5,500 | | — | | 6,500 | |
| Facility lease expense - CASH | | $ | 65,198 | | | $ | 74,000 | | — | $ | 75,800 | |
| | | | | | | | | | | | | |
| Interest expense - GAAP | | $ | 60,861 | | | $ | 74,000 | | — | $ | 75,000 | |
| Less: | | | | | | | | | | | | |
| Capital lease interest | | | (34,994 | ) | | | (46,500 | ) | — | | (47,000 | ) |
| Loan fee amortization and other | | | (784 | ) | | | (700 | ) | — | | (800 | ) |
| Interest expense - CASH | | $ | 25,083 | | | $ | 26,800 | | — | $ | 27,200 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Depreciation - owned assets | | $ | 20,119 | | | $ | 18,000 | | — | $ | 19,000 | |
| Depreciation - capital leases | | | 19,832 | | | | 27,000 | | — | | 28,500 | |
| Amortization - intangible assets | | | 2,654 | | | | 1,500 | | — | | 2,000 | |
| Total depreciation and amortization | | $ | 42,605 | | | $ | 46,500 | | — | $ | 49,500 | |
(1) Fourth quarter 2012 expense includes a $2.3 million noncash charge related to a residual value guarantee in a lease.
EMERITUS CORPORATION |
Consolidated Supplemental Financial Information For the Quarters Ended |
| (unaudited) |
(Dollars in thousands, except non-financial and per-unit data) |
Non-Financial Data: | | | Q4 2011 | | | | Q1 2012 | | | | Q2 2012 | | | | Q3 2012 | | | | Q4 2012 | |
| Average consolidated communities | | | 332.8 | | | | 328.0 | | | | 327.3 | | | | 325.3 | | | | 414.3 | |
| Average available units | | | 30,096 | | | | 29,667 | | | | 29,629 | | | | 29,513 | | | | 36,672 | |
| Average occupied units | | | 26,059 | | | | 25,694 | | | | 25,603 | | | | 25,719 | | | | 31,482 | |
| Average occupancy | | | 86.6 | % | | | 86.6 | % | | | 86.4 | % | | | 87.1 | % | | | 86.8 | % |
| Average monthly revenue per occupied unit | | $ | 4,073 | | | $ | 4,115 | | | $ | 4,140 | | | $ | 4,189 | | | $ | 4,077 | |
| Calendar days | | | 92 | | | | 91 | | | | 91 | | | | 92 | | | | 92 | |
| | | | | | | | | | | | | | | | | | | | | |
| Community revenues: | | | | | | | | | | | | | | | | | | | | |
| Community revenues | | $ | 313,613 | | | $ | 312,724 | | | $ | 314,170 | | | $ | 319,556 | | | $ | 406,044 | |
| Move-in fees | | | 5,751 | | | | 5,816 | | | | 5,816 | | | | 5,753 | | | | 5,503 | |
| Move-in incentives | | | (378 | ) | | | (617 | ) | | | (1,358 | ) | | | (1,434 | ) | | | (1,953 | ) |
| Total community revenues | | $ | 318,986 | | | $ | 317,923 | | | $ | 318,628 | | | $ | 323,874 | | | $ | 409,594 | |
| | | | | | | | | | | | | | | | | | | | | |
| Community operating expenses: | | | | | | | | | | | | | | | | | | | | |
| Salaries and wages - regular and overtime | | $ | 100,884 | | | $ | 98,277 | | | $ | 98,030 | | | $ | 99,456 | | | $ | 130,116 | |
| Average daily salary and wages | | $ | 1,097 | | | $ | 1,080 | | | $ | 1,077 | | | $ | 1,081 | | | $ | 1,414 | |
| Average daily wages per occupied unit | | $ | 42.08 | | | $ | 42.03 | | | $ | 42.08 | | | $ | 42.03 | | | $ | 44.42 | |
| | | | | | | | | | | | | | | | | | | | | |
| Payroll taxes and employee benefits | | $ | 32,347 | | | $ | 34,839 | | | $ | 33,203 | | | $ | 32,145 | | | $ | 38,376 | |
| Percent of salaries and wages | | | 32.1 | % | | | 35.4 | % | | | 33.9 | % | | | 32.3 | % | | | 29.5 | % |
| | | | | | | | | | | | | | | | | | | | | |
| Prior year self-insurance reserve adjustments | | $ | 4,133 | | | $ | 397 | | | $ | 1,849 | | | $ | 190 | | | $ | 3,560 | |
| | | | | | | | | | | | | | | | | | | | | |
| Utilities | | $ | 12,586 | | | $ | 13,532 | | | $ | 12,141 | | | $ | 14,805 | | | $ | 15,337 | |
| Average monthly cost per occupied unit | | $ | 161 | | | $ | 176 | | | $ | 158 | | | $ | 192 | | | $ | 161 | |
| | | | | | | | | | | | | | | | | | | | | |
| Facility maintenance and repairs | | $ | 8,178 | | | $ | 7,877 | | | $ | 8,427 | | | $ | 8,644 | | | $ | 9,835 | |
| Average monthly cost per occupied unit | | $ | 105 | | | $ | 102 | | | $ | 110 | | | $ | 112 | | | $ | 103 | |
| | | | | | | | | | | | | | | | | | | | | |
| All other community operating expenses | | $ | 61,227 | | | $ | 58,551 | | | $ | 59,921 | | | $ | 61,703 | | | $ | 78,424 | |
| Average monthly cost per occupied unit | | $ | 783 | | | $ | 760 | | | $ | 780 | | | $ | 780 | | | $ | 821 | |
| | | | | | | | | | | | | | | | | | | | | |
| Total community operating expenses | | $ | 219,355 | | | $ | 213,473 | | | $ | 213,571 | | | $ | 216,943 | | | $ | 275,648 | |
| | | | | | | | | | | | | | | | | | | | | |
| Community operating income | | $ | 99,631 | | | $ | 104,450 | | | $ | 105,057 | | | $ | 106,931 | | | $ | 133,946 | |
| | | | | | | | | | | | | | | | | | | | | |
| Operating income margin | | | 31.2 | % | | | 32.9 | % | | | 33.0 | % | | | 33.0 | % | | | 32.7 | % |
| EMERITUS CORPORATION |
Selected Consolidated and Same Community Information For the Quarters Ended |
(unaudited) (Community revenue and operating expense in thousands) |
| | | | Q1 2012 | | | | Q2 2012 | | | | Q3 2012 | | | | Q4 2012 | | | YTD 2012 | |
| Consolidated: | | | | | | | | | | | | | | | | | | | |
| Average consolidated communities | | | 328.0 | | | | 327.3 | | | | 325.3 | | | | 414.3 | | | | 348.8 | |
| Community revenue | | $ | 317,923 | | | $ | 318,628 | | | $ | 323,874 | | | $ | 409,594 | | | $ | 1,370,019 | |
| Community operating expense | | | 213,473 | | | | 213,571 | | | | 216,943 | | | | 275,648 | | | | 919,635 | |
| Average occupancy | | | 86.6 | % | | | 86.4 | % | | | 87.1 | % | | | 86.8 | % | | | 86.8 | % |
| Average monthly revenue per unit | | $ | 4,115 | | | $ | 4,140 | | | $ | 4,189 | | | $ | 4,077 | | | $ | 4,127 | |
| Operating income margin | | | 32.9 | % | | | 33.0 | % | | | 33.0 | % | | | 32.7 | % | | | 32.9 | % |
| | | | | | | | | | | | | | | | | | | | | |
| Consolidated Same Community: | | | | | | | | | | | | | | | | | | | | |
| Average consolidated communities | | | 293.0 | | | | 293.0 | | | | 293.0 | | | | 293.0 | | | | 293.0 | |
| Community revenue | | $ | 288,043 | | | $ | 289,454 | | | $ | 294,766 | | | $ | 296,893 | | | $ | 1,169,156 | |
| Community operating expense | | | 192,130 | | | | 191,016 | | | | 196,432 | | | | 192,993 | | | | 772,571 | |
| Average occupancy | | | 86.9 | % | | | 86.6 | % | | | 87.4 | % | | | 87.3 | % | | | 87.1 | % |
| Average monthly revenue per unit | | $ | 4,106 | | | $ | 4,139 | | | $ | 4,179 | | | $ | 4,212 | | | $ | 4,159 | |
| Operating income margin | | | 33.3 | % | | | 34.0 | % | | | 33.4 | % | | | 35.0 | % | | | 33.9 | % |
| | | | | | | | | | | | | | | | | | | | | |
| Total Portfolio Same Community: | | | | | | | | | | | | | | | | | | | | |
| Average consolidated communities | | | 467.0 | | | | 467.0 | | | | 467.0 | | | | 467.0 | | | | 467.0 | |
| Community revenue | | $ | 410,028 | | | $ | 412,031 | | | $ | 419,471 | | | $ | 422,587 | | | $ | 1,664,117 | |
| Community operating expense | | | 280,312 | | | | 279,854 | | | | 287,387 | | | | 279,993 | | | | 1,127,546 | |
| Average occupancy | | | 86.1 | % | | | 86.0 | % | | | 86.7 | % | | | 86.7 | % | | | 86.4 | % |
| Average monthly revenue per unit | | $ | 3,880 | | | $ | 3,902 | | | $ | 3,941 | | | $ | 3,972 | | | $ | 3,924 | |
| Operating income margin | | | 31.6 | % | | | 32.1 | % | | | 31.5 | % | | | 33.7 | % | | | 32.2 | % |
| | | | | | | | | | | | | | | | | | | | | |
| | | | Q1 2011 | | | | Q2 2011 | | | | Q3 2011 | | | | Q4 2011 | | | YTD 2011 | |
| Consolidated: | | | | | | | | | | | | | | | | | | | | |
| Average consolidated communities | | | 306.7 | | | | 316.0 | | | | 333.3 | | | | 332.8 | | | | 322.3 | |
| Community revenue | | $ | 294,720 | | | $ | 301,722 | | | $ | 318,237 | | | $ | 318,986 | | | $ | 1,233,665 | |
| Community operating expense | | | 199,031 | | | | 205,358 | | | | 223,423 | | | | 219,355 | | | | 847,167 | |
| Average occupancy | | | 86.0 | % | | | 86.0 | % | | | 86.5 | % | | | 86.6 | % | | | 86.3 | % |
| Average monthly revenue per unit | | $ | 4,059 | | | $ | 4,057 | | | $ | 4,065 | | | $ | 4,073 | | | $ | 4,063 | |
| Operating income margin | | | 32.5 | % | | | 31.9 | % | | | 29.8 | % | | | 31.2 | % | | | 31.3 | % |
| | | | | | | | | | | | | | | | | | | | | |
| Consolidated Same Community: | | | | | | | | | | | | | | | | | | | | |
| Average consolidated communities | | | 293.0 | | | | 293.0 | | | | 293.0 | | | | 293.0 | | | | 293.0 | |
| Community revenue | | $ | 287,499 | | | $ | 286,609 | | | $ | 287,997 | | | $ | 287,514 | | | $ | 1,149,620 | |
| Community operating expense | | | 192,307 | | | | 190,296 | | | | 191,582 | | | | 191,974 | | | | 766,159 | |
| Average occupancy | | | 86.7 | % | | | 86.6 | % | | | 87.1 | % | | | 87.2 | % | | | 86.9 | % |
| Average monthly revenue per unit | | $ | 4,107 | | | $ | 4,103 | | | $ | 4,100 | | | $ | 4,085 | | | $ | 4,099 | |
| Operating income margin | | | 33.1 | % | | | 33.6 | % | | | 33.5 | % | | | 33.2 | % | | | 33.4 | % |
| | | | | | | | | | | | | | | | | | | | | |
| Total Portfolio Same Community: | | | | | | | | | | | | | | | | | | | | |
| Average consolidated communities | | | 467.0 | | | | 467.0 | | | | 467.0 | | | | 467.0 | | | | 467.0 | |
| Community revenue | | $ | 401,653 | | | $ | 403,903 | | | $ | 408,128 | | | $ | 407,823 | | | $ | 1,621,507 | |
| Community operating expense | | | 278,740 | | | | 276,664 | | | | 279,979 | | | | 280,228 | | | | 1,115,611 | |
| Average occupancy | | | 84.5 | % | | | 85.1 | % | | | 85.8 | % | | | 86.1 | % | | | 85.4 | % |
| Average monthly revenue per unit | | $ | 3,869 | | | $ | 3,867 | | | $ | 3,873 | | | $ | 3,857 | | | $ | 3,866 | |
| Operating income margin | | | 30.6 | % | | | 31.5 | % | | | 31.4 | % | | | 31.3 | % | | | 31.2 | % |
