EXHIBIT 99.2
PRO FORMA UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET OF BROOKDALE SENIOR LIVING INC. AND UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS OF BROOKDALE FACILITY GROUP, PREDECESSOR TO BROOKDALE SENIOR LIVING INC.
The following unaudited pro forma condensed consolidated and combined financial information sets forth the historical financial information as of and for the three and nine months ended September 30, 2005 and for the year ended December 31, 2004 derived from the combined historical financial statements and the financial statements of our predecessor, Brookdale Facility Group, as adjusted to give effect to:
• | pro forma adjustments to give effect to the Provident sale-leaseback and Ventas operating lease on the combined statement of operations as if these transactions closed on January 1, 2004; | ||
• | pro forma adjustments to give effect to the refinancing of five facilities, tax effect of the purchase of four of these facilities and termination of forward interest rate swaps as if these transactions closed on January 1, 2005 and 2004; | ||
• | pro forma adjustments to give effect to the Fortress CCRC Portfolio and the Prudential Portfolio acquisitions on the combined statements of operations as if these transactions closed on January 1, 2004; | ||
• | pro forma adjustment to give effect to the September 30, 2005 step-up in basis of non-controlling ownership (ownership interests not controlled or owned by affiliates of Fortress Investment Group LLC, “Minority Shareholders”) due to the exchanges of Brookdale Facility Group minority ownership for Company ownership as if the transaction was completed on January 1, 2004; | ||
• | pro forma adjustment to give effect to the compensation expense in connection with the grants under the restricted stock plan; | ||
• | incremental general and administrative expenses related to operating as a public company; | ||
• | our initial public offering, repayment of indebtedness and other use of proceeds; and | ||
• | acquisition of the Chambrel portfolio and Merrill Gardens portfolio subsequent to our initial public offering. |
The unaudited pro forma condensed consolidated and combined financial information is presented for informational purposes only, and we do not expect that this information will reflect our future results of operations or financial position. The unaudited pro forma adjustments are based on available information and upon assumptions that we believe are reasonable. The unaudited pro forma financial information assumes that the transactions and our initial offering were completed as of September 30, 2005 for purposes of the unaudited pro forma condensed consolidated balance sheet and as of January 1, 2005 and 2004 for purposes of the unaudited pro forma condensed combined statements of operations.
10
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
BROOKDALE SENIOR LIVING INC.
BROOKDALE SENIOR LIVING INC.
As of September 30, 2005
(Unaudited, in thousands)
(Unaudited, in thousands)
Pro | ||||||||||||||||||||||||||||
Brookdale | Initial | Post - | Forma, | |||||||||||||||||||||||||
Senior | Other | Public | Pro | IPO | As | |||||||||||||||||||||||
Living | Adjustments | Pro Forma | Offering(D) | Forma | Acquisitions(G) | Adjusted | ||||||||||||||||||||||
Assets: | ||||||||||||||||||||||||||||
Cash | $ | 59,751 | $ | (14,355 | )(M) | $ | 45,396 | $ | 46,647 | $ | 92,043 | $ | (57,139 | ) | $ | 34,904 | ||||||||||||
Cash and investment-restricted | 43,076 | — | 43,076 | — | 43,076 | 6,162 | 49,238 | |||||||||||||||||||||
Accounts receivables, net | 11,540 | — | 11,540 | — | 11,540 | — | 11,540 | |||||||||||||||||||||
Other current assets | 16,623 | — | 16,623 | — | 16,623 | (1,006 | ) | 15,617 | ||||||||||||||||||||
Total current assets | 130,990 | (14,355 | ) | 116,635 | 46,647 | 163,282 | (51,983 | ) | 111,299 | |||||||||||||||||||
Property plant and equipment, net | 1,205,649 | — | 1,205,649 | 20,700 | 1,226,349 | 177,185 | 1,403,534 | |||||||||||||||||||||
Cash and investments-restricted | 25,211 | — | 25,211 | (1,000 | ) | 24,211 | — | 24,211 | ||||||||||||||||||||
Investments in unconsolidated ventures | 14,215 | — | 14,215 | — | 14,215 | — | 14,215 | |||||||||||||||||||||
Deferred costs | 6,563 | — | 6,563 | — | 6,563 | 695 | 7,258 | |||||||||||||||||||||
Other assets | 89,307 | — | 89,307 | 1,006 | 90,313 | — | 90,313 | |||||||||||||||||||||
Total assets | $ | 1,471,935 | $ | (14,355 | ) | $ | 1,457,580 | $ | 67,353 | $ | 1,524,933 | $ | 125,897 | $ | 1,650,830 | |||||||||||||
Liabilities and Stockholders’ Equity: | ||||||||||||||||||||||||||||
Current portion of debt | $ | 5,247 | $ | — | $ | 5,247 | $ | (1,796 | ) | 3,451 | — | 3,451 | ||||||||||||||||
Trade accounts payable | 7,445 | — | 7,445 | — | 7,445 | — | 7,445 | |||||||||||||||||||||
Refundable entrance fees | 25,257 | — | 25,257 | — | 25,257 | — | 25,257 | |||||||||||||||||||||
Accrued expenses and other liabilities | 132,535 | (14,355 | )(M) | 118,180 | — | 118,180 | (3,081 | ) | 115,099 | |||||||||||||||||||
Total current liabilities | 170,484 | (14,355 | ) | 156,129 | (1,796 | ) | 154,333 | (3,081 | ) | 151,252 | ||||||||||||||||||
Mortgage and other indebtedness | 586,454 | — | 586,454 | (45,950 | ) | 540,504 | 141,841 | 682,345 | ||||||||||||||||||||
Capitalized lease obligation | 66,284 | — | 66,284 | — | 66,284 | — | 66,284 | |||||||||||||||||||||
Deferred gains | 66,213 | — | 66,213 | — | 66,213 | (8,807 | ) | 57,406 | ||||||||||||||||||||
Deferred tax liability | 30,839 | — | 30,839 | — | 30,839 | — | 30,839 | |||||||||||||||||||||
Other | 39,246 | — | 39,246 | (1,222 | ) | 38,024 | (4,056 | ) | 33,968 | |||||||||||||||||||
Total liabilities | 959,520 | (14,355 | ) | 945,165 | (48,968 | ) | 896,197 | 125,897 | 1,022,094 | |||||||||||||||||||
Stockholders’ equity | 512,415 | — | 512,415 | 116,321 | 628,736 | — | 628,736 | |||||||||||||||||||||
Total liabilities and stockholders’ equity | $ | 1,471,935 | $ | (14,355 | ) | $ | 1,457,580 | $ | 67,353 | $ | 1,524,933 | $ | 125,897 | $ | 1,650,830 | |||||||||||||
See accompanying notes.
11
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
OF BROOKDALE FACILITY GROUP, PREDECESSOR TO
BROOKDALE SENIOR LIVING INC.
OF BROOKDALE FACILITY GROUP, PREDECESSOR TO
BROOKDALE SENIOR LIVING INC.
For the Year Ended December 31, 2004
(Unaudited, in thousands, except per share amounts)
(Unaudited, in thousands, except per share amounts)
BROOKDALE | ||||||||||||||||||||||||||||||||||||
HISTORICAL | FACILITY | |||||||||||||||||||||||||||||||||||
BROOKDALE | GROUP | OTHER | INITIAL | POST | PRO FORMA, | |||||||||||||||||||||||||||||||
FACILITY | TRANSACTION | PRO FORMA | PUBLIC | IPO | AS | |||||||||||||||||||||||||||||||
GROUP(A) | ADJUSTMENTS | ACQUISITION(C) | ADJUSTMENTS | PRO FORMA | OFFERING | PRO FORMA | ACQUISITION(G) | ADJUSTED | ||||||||||||||||||||||||||||
REVENUE: | ||||||||||||||||||||||||||||||||||||
Resident fees | $ | 657,327 | $ | 9,760 | $ | 118,712 | $ | — | $ | 785,799 | $ | — | $ | 785,799 | $ | 5,118 | $ | 790,917 | ||||||||||||||||||
Management fees | 3,545 | 648 | — | 250 | (I) | 4,443 | — | 4,443 | — | 4,443 | ||||||||||||||||||||||||||
Total revenues | 660,872 | 10,408 | 118,712 | 250 | 790,242 | — | 790,242 | 5,118 | 795,360 | |||||||||||||||||||||||||||
OPERATING EXPENSES: | ||||||||||||||||||||||||||||||||||||
Facility operating | 415,169 | 5,968 | 83,508 | — | (F) | 504,645 | — | 504,645 | 3,710 | 508,355 | ||||||||||||||||||||||||||
General and administrative (including non-cash stock compensation expense) | 43,640 | — | 6,799 | 2,476 | (F)(G) | 58,222 | — | 58,222 | — | 58,222 | ||||||||||||||||||||||||||
5,307 | (H) | |||||||||||||||||||||||||||||||||||
Facility lease expense | 99,997 | 80,382 | 1,008 | — | 181,387 | 4,133 | 185,520 | (9,498 | ) | 176,022 | ||||||||||||||||||||||||||
Depreciation and amortization | 52,307 | (25,039 | ) | 29,623 | 1,000 | (E) | 57,891 | 21,605 | 79,496 | 10,656 | 90,152 | |||||||||||||||||||||||||
Total operating expenses | 611,113 | 61,311 | 120,938 | 8,783 | 802,145 | 25,738 | 827,883 | 4,868 | 832,751 | |||||||||||||||||||||||||||
OPERATING INCOME (LOSS) | 49,759 | (50,903 | ) | (2,226 | ) | (8,533 | ) | (11,903 | ) | (25,738 | ) | (37,641 | ) | 250 | (37,391 | ) | ||||||||||||||||||||
Interest income | 637 | — | — | 1,515 | (K) | 2,152 | — | 2,152 | — | 2,152 | ||||||||||||||||||||||||||
Interest expense: | ||||||||||||||||||||||||||||||||||||
Debt | (55,851 | ) | 30,389 | (16,196 | ) | (83 | )(E) | (41,741 | ) | 3,982 | (37,759 | ) | (5,145 | ) | (42,904 | ) | ||||||||||||||||||||
Capitalized lease obligation | (7,783 | ) | — | — | — | (7,783 | ) | — | (7,783 | ) | — | (7,783 | ) | |||||||||||||||||||||||
Change in fair value of derivatives | 3,176 | — | — | (3,176 | )(J) | — | — | — | — | — | ||||||||||||||||||||||||||
Gain (loss) on extinguishment of debt | 1,051 | — | — | (788 | )(E) | 263 | — | 263 | (2,845 | ) | (2,582 | ) | ||||||||||||||||||||||||
Equity in earnings of unconsolidated ventures | (931 | ) | — | — | — | (931 | ) | — | (931 | ) | — | (931 | ) | |||||||||||||||||||||||
Other | (114 | ) | — | — | — | (114 | ) | — | (114 | ) | — | (114 | ) | |||||||||||||||||||||||
Loss before taxes | (10,056 | ) | (20,514 | ) | (18,422 | ) | (11,065 | ) | (60,057 | ) | (21,756 | ) | (81,813 | ) | (7,740 | ) | (89,553 | ) | ||||||||||||||||||
Provision for income taxes | (11,111 | ) | 7,190 | — | — | (L) | (3,921 | ) | — | (3,921 | ) | — | (3,921 | ) | ||||||||||||||||||||||
Loss before minority interest | (21,167 | ) | (13,324 | ) | (18,422 | ) | (11,065 | ) | (63,978 | ) | (21,756 | ) | (85,734 | ) | (7,740 | ) | (93,474 | ) | ||||||||||||||||||
Minority interest, net | 11,734 | — | — | — | 11,734 | (11,734 | ) | — | — | — | ||||||||||||||||||||||||||
Loss from continuing operations | $ | (9,433 | ) | $ | (13,324 | ) | $ | (18,422 | ) | $ | (11,065 | ) | $ | (52,244 | ) | $ | (33,490 | ) | $ | (85,734 | ) | $ | (7,740 | ) | $ | (93,474 | ) | |||||||||
Weighted average shares outstanding Basic | 60,877 | |||||||||||||||||||||||||||||||||||
Diluted | 60,877 | |||||||||||||||||||||||||||||||||||
All shares | 64,900 | |||||||||||||||||||||||||||||||||||
Loss per share — continuing operations Basic | $ | (1.54 | ) | |||||||||||||||||||||||||||||||||
Diluted | $ | (1.54 | ) | |||||||||||||||||||||||||||||||||
All shares | $ | (1.44 | ) |
See accompanying notes.
12
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS OF
BROOKDALE FACILITY GROUP, PREDECESSOR TO
BROOKDALE SENIOR LIVING INC.
For the Three Months ended September 30, 2005
(Unaudited, in thousands, except per share amounts)
BROOKDALE FACILITY GROUP, PREDECESSOR TO
BROOKDALE SENIOR LIVING INC.
For the Three Months ended September 30, 2005
(Unaudited, in thousands, except per share amounts)
HISTORICAL | ||||||||||||||||||||||||||||||||
BROOKDALE | OTHER | INITIAL | POST | PRO FORMA, | ||||||||||||||||||||||||||||
FACILITY | PRO FORMA | PUBLIC | IPO | AS | ||||||||||||||||||||||||||||
GROUP(A) | ACQUISITION(C) | ADJUSTMENTS | PRO FORMA | OFFERING | PRO FORMA | ACQUISITION(G) | ADJUSTED | |||||||||||||||||||||||||
REVENUE | ||||||||||||||||||||||||||||||||
Resident fees | $ | 208,371 | $ | 338 | $ | — | $ | 208,709 | $ | — | $ | 208,709 | $ | 1,363 | $ | 210,072 | ||||||||||||||||
Management fees | 988 | — | 63 | (M) | 1,051 | — | 1,051 | — | 1,051 | |||||||||||||||||||||||
Total revenues | 209,359 | 338 | 63 | 209,760 | — | 209,760 | 1,363 | 211,123 | ||||||||||||||||||||||||
OPERATING EXPENSES: | ||||||||||||||||||||||||||||||||
Facility operating | 133,568 | 156 | — | (F) | 133,724 | — | 133,724 | 942 | 134,666 | |||||||||||||||||||||||
General and administrative (including non-cash stock compensation expense) | 29,922 | — | 619 | (F), | (G) | 40,775 | — | 40,775 | — | 40,775 | ||||||||||||||||||||||
10,234 | (H) | |||||||||||||||||||||||||||||||
Facility lease expense | 47,259 | 83 | — | 47,342 | 1,048 | 48,390 | (2,689 | ) | 45,701 | |||||||||||||||||||||||
Depreciation and amortization | 15,058 | (275 | ) | — | (E) | 14,783 | 4,393 | 19,176 | 2,570 | 21,746 | ||||||||||||||||||||||
Total operating expenses | 225,807 | (36 | ) | 10,853 | 236,624 | 5,441 | 242,065 | 823 | 242,888 | |||||||||||||||||||||||
Operating Income (loss) | (16,448 | ) | 374 | (10,790 | ) | (26,864 | ) | (5,441 | ) | (32,305 | ) | 540 | (31,765 | ) | ||||||||||||||||||
Interest income | 825 | — | 587 | (K) | 1,412 | — | 1,412 | — | 1,412 | |||||||||||||||||||||||
Interest Expense: | ||||||||||||||||||||||||||||||||
Debt | (10,802 | ) | 17 | 189 | (E) | (10,596 | ) | 1,003 | (9,593 | ) | (1,614 | ) | (11,207 | ) | ||||||||||||||||||
Capitalized lease obligation | (2,324 | ) | — | — | (2,324 | ) | — | (2,324 | ) | — | (2,324 | ) | ||||||||||||||||||||
Change in fair value of derivatives | (67 | ) | — | 67 | (J) | — | — | — | — | — | ||||||||||||||||||||||
Equity in earnings of unconsolidated ventures | (196 | ) | — | — | (196 | ) | — | (196 | ) | — | (196 | ) | ||||||||||||||||||||
Loss before taxes | (29,012 | ) | 391 | (9,947 | ) | (38,568 | ) | (4,438 | ) | (43,006 | ) | (1,074 | ) | (44,080 | ) | |||||||||||||||||
Provision for income taxes | (748 | ) | — | — | (L) | (748 | ) | — | (748 | ) | — | (748 | ) | |||||||||||||||||||
Loss before minority interest | (29,760 | ) | 391 | (9,947 | ) | (39,316 | ) | (4,438 | ) | (43,754 | ) | (1,074 | ) | (44,828 | ) | |||||||||||||||||
Minority interest, net | 10,918 | — | — | 10,918 | (10,918 | ) | — | — | — | |||||||||||||||||||||||
Loss from continuing operations | $ | (18,842 | ) | $ | 391 | $ | (9,947 | ) | $ | (28,398 | ) | $ | (15,356 | ) | $ | (43,754 | ) | $ | (1,074 | ) | $ | (44,828 | ) | |||||||||
Weighted average shares | ||||||||||||||||||||||||||||||||
outstanding Basic | 60,877 | |||||||||||||||||||||||||||||||
Diluted | 60,877 | |||||||||||||||||||||||||||||||
All shares | 64,900 | |||||||||||||||||||||||||||||||
Loss per share — | ||||||||||||||||||||||||||||||||
continuing operations | ||||||||||||||||||||||||||||||||
Basic | $ | (0.74 | ) | |||||||||||||||||||||||||||||
Diluted | $ | (0.74 | ) | |||||||||||||||||||||||||||||
All shares | $ | (0.69 | ) |
See accompanying notes.
13
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS OF
BROOKDALE FACILITY GROUP, PREDECESSOR TO
BROOKDALE SENIOR LIVING INC.
For the Nine Months ended September 30, 2005
(Unaudited, in thousands, except per share amounts)
BROOKDALE FACILITY GROUP, PREDECESSOR TO
BROOKDALE SENIOR LIVING INC.
For the Nine Months ended September 30, 2005
(Unaudited, in thousands, except per share amounts)
HISTORICAL | ||||||||||||||||||||||||||||||||
BROOKDALE | OTHER | INITIAL | POST | PRO FORMA, | ||||||||||||||||||||||||||||
FACILITY | PRO FORMA | PUBLIC | IPO | AS | ||||||||||||||||||||||||||||
GROUP(A) | ACQUISITION(C) | ADJUSTMENTS | PRO FORMA | OFFERING | PRO FORMA | ACQUISITION(G) | ADJUSTED | |||||||||||||||||||||||||
REVENUE | ||||||||||||||||||||||||||||||||
Resident fees | $ | 574,855 | $ | 41,883 | $ | — | $ | 616,738 | $ | — | $ | 616,738 | $ | 4,121 | $ | 620,859 | ||||||||||||||||
Management fees | 2,675 | — | 188 | (I) | 2,863 | — | 2,863 | — | 2,863 | |||||||||||||||||||||||
Total revenues | 577,530 | 41,883 | 188 | 619,601 | — | 619,601 | 4,121 | 623,722 | ||||||||||||||||||||||||
OPERATING EXPENSES: | ||||||||||||||||||||||||||||||||
Facility operating | 366,782 | 27,648 | — | (F) | 394,430 | — | 394,430 | 2,844 | 397,274 | |||||||||||||||||||||||
General and administrative (including non-cash stock compensation expense) | 52,903 | 2,558 | 1,857(F), | (G) | 70,205 | — | 70,205 | — | 70,205 | |||||||||||||||||||||||
12,887 | (H) | |||||||||||||||||||||||||||||||
Facility lease expense | 140,852 | 583 | — | 141,435 | 3,002 | 144,437 | (7,946 | ) | 136,491 | |||||||||||||||||||||||
Depreciation and amortization | 30,861 | 10,149 | 41 | (E) | 41,051 | 15,178 | 56,229 | 7,772 | 64,001 | |||||||||||||||||||||||
Total operating expenses | 591,398 | 40,938 | 14,785 | 647,121 | 18,180 | 665,301 | 2,670 | 667,971 | ||||||||||||||||||||||||
Operating Income (loss) | (13,868 | ) | 945 | (14,597 | ) | (27,520 | ) | (18,180 | ) | (45,700 | ) | 1,451 | (44,249 | ) | ||||||||||||||||||
Interest income | 2,200 | — | 1,760 | (K) | 3,960 | — | 3,960 | — | 3,960 | |||||||||||||||||||||||
Interest Expense: | ||||||||||||||||||||||||||||||||
Debt | (26,564 | ) | (6,016 | ) | 811 | (E) | (31,769 | ) | 3,005 | (28,764 | ) | (4,754 | ) | (33,518 | ) | |||||||||||||||||
Capitalized lease obligation | (6,875 | ) | — | — | (6,875 | ) | — | (6,875 | ) | — | (6,875 | ) | ||||||||||||||||||||
Change in fair value of derivatives | 4,080 | — | (4,080 | )(J) | — | — | — | — | — | |||||||||||||||||||||||
Loss on extinguishment of debt | (453 | ) | — | (172 | )(E) | (625 | ) | — | (625 | ) | — | (625 | ) | |||||||||||||||||||
Equity in earnings of unconsolidated ventures | (641 | ) | — | — | (641 | ) | — | (641 | ) | — | (641 | ) | ||||||||||||||||||||
Loss before taxes | (42,121 | ) | (5,071 | ) | (16,278 | ) | (63,470 | ) | (15,175 | ) | (78,645 | ) | (3,303 | ) | (81,948 | ) | ||||||||||||||||
Provision for income taxes | (933 | ) | — | — | (L) | (933 | ) | — | (933 | ) | — | (933 | ) | |||||||||||||||||||
Loss before minority interest | (43,054 | ) | (5,071 | ) | (16,278 | ) | (64,403 | ) | (15,175 | ) | (79,578 | ) | (3,303 | ) | (82,881 | ) | ||||||||||||||||
Minority interest, net | 16,389 | — | — | 16,389 | (16,389 | ) | — | — | — | |||||||||||||||||||||||
Loss from continuing operations | $ | (26,665 | ) | $ | (5,071 | ) | $ | (16,278 | ) | $ | (48,014 | ) | $ | (31,564 | ) | $ | (79,578 | ) | $ | (3,303 | ) | $ | (82,881 | ) | ||||||||
Weighted average shares outstanding | ||||||||||||||||||||||||||||||||
Basic | 60,877 | |||||||||||||||||||||||||||||||
Diluted | 60,877 | |||||||||||||||||||||||||||||||
All shares | 64,900 | |||||||||||||||||||||||||||||||
Income (loss) per share—continuing operations | ||||||||||||||||||||||||||||||||
Basic Diluted | $ | (1.36 | ) | |||||||||||||||||||||||||||||
All shares | $ | (1.36 | ) | |||||||||||||||||||||||||||||
$ | (1.28 | ) |
See accompanying notes.
14
BROOKDALE SENIOR LIVING INC.
NOTES AND MANAGEMENT’S ASSUMPTIONS TO UNAUDITED
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands)
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands)
1. Basis of Presentation
Brookdale Senior Living Inc. (the “Company”) was formed as a Delaware corporation on June 28, 2005 to succeed to the businesses of Brookdale Living Communities Inc., Alterra Healthcare Corporation, Fortress CCRC Portfolio and Prudential Portfolio (collectively, the “Brookdale Facility Group”). On September 30, 2005, the Brookdale Facility Group was contributed to the Company in exchange for common stock of the Company.
The accompanying unaudited pro forma condensed consolidated financial information assumes that the initial public offering and other formation transactions described in the prospectus filed with the Securities and Exchange Commission (the “SEC”) on November 23, 2005 occurred on September 30, 2005 for purposes of the unaudited pro forma condensed consolidated balance sheet and as of January 1, 2005 and 2004 for purposes of the unaudited pro forma condensed consolidated statements of operations.
Common stock issued to controlling shareholders and affiliates of Fortress Investment Group (“FIG”) in our combination transaction was recorded based on historical cost. All other common stock issued to Minority Shareholders was recorded at fair value based upon the per share price of our offering.
The unaudited pro forma condensed consolidated financial statements are not necessarily indicative of the actual financial position as of September 30, 2005 or what the actual results of operations of the Company would have been assuming the offering and formation transactions had been completed as of January 1, 2004, nor are they indicative of the results of operations of future periods.
2. Adjustments to Pro Forma Condensed Consolidated Balance Sheet and Statement of Operations
(A) Historical Financial Statements
Reflects the results of operations of Brookdale Facility Group for the three and nine months ended September 30, 2005 and for the year ended December 31, 2004.
(B) Brookdale Facility Group Transaction Adjustments
Reflects the effect as if Brookdale Facility Group had consummated its 2004 leases and sale leasebacks and 2005 purchase of the five development facilities as of the beginning of the year ended December 31, 2004. The adjustments relate to adding the operations of the newly leased facilities as of January 1, 2004 (resident fees, facility operating expenses and facility lease expenses) and the elimination of ownership costs (interest income, depreciation and amortization expense and interest expense) and the addition of lease expense (facility lease expenses) associated with the lease and sale-leaseback facilities as of January 1, 2004. The adjustment also includes the net effect the above adjustments had on the overall Brookdale Facility Group income tax provision for 2004. Five facilities that were consolidated, but not owned in 2004, were purchased in March 2005 (four facilities) and December 31, 2005 (one facility). Included in the 2004 adjustment to the provision for income taxes is the net effect as if they were owned as of January 1, 2004.
(C) Acquisitions Adjustments
Statements of Operations:
The Fortress CCRC Portfolio and Prudential Portfolio acquisitions were completed in April 2005 and June/July 2005, respectively. The acquisitions and related purchase price allocations of these acquisitions are reflected in the historical balance sheet of the Company as of September 30, 2005. The pro forma adjustments below reflect the
15
historical operations of the Fortress CCRC Portfolio and Prudential Portfolio for the year ended December 31, 2004 and three and nine months ended September 30, 2005:
FORTRESS CCRC PORTFOLIO(4) | PRUDENTIAL PORTFOLIO(4) | |||||||||||||||||||||||||||
PRO FORMA | PRO FORMA | |||||||||||||||||||||||||||
HISTORICAL(1) | ADJUSTMENTS | NET | HISTORICAL(1) | ADJUSTMENTS | NET | TOTAL | ||||||||||||||||||||||
Year ended December 31, 2004: | ||||||||||||||||||||||||||||
Revenue: | ||||||||||||||||||||||||||||
Resident fees | $ | 83,206 | $ | (11,861 | )(2) | $ | 71,345 | $ | 47,367 | $ | — | $ | 47,367 | $ | 118,712 | |||||||||||||
Total revenues | 83,206 | (11,861 | ) | 71,345 | 47,367 | — | 47,367 | 118,712 | ||||||||||||||||||||
Operating Expenses: | ||||||||||||||||||||||||||||
Facility operating | 68,079 | (11,108 | )(2) | 56,971 | 26,537 | — | 26,537 | 83,508 | ||||||||||||||||||||
Management fees— affiliate | 3,467 | — | 3,467 | 3,332 | — | 3,332 | 6,799 | (7) | ||||||||||||||||||||
Facility lease expenses | — | — | — | 1,008 | — | 1,008 | 1,008 | |||||||||||||||||||||
Depreciation and amortization | 7,885 | 8,020 | 15,905 | 5,087 | 8,631 | 13,718 | 29,623 | (8) | ||||||||||||||||||||
Impairment of property and equipment | 9,063 | (9,063 | )(5) | — | — | — | — | — | ||||||||||||||||||||
Total operating expenses | 88,494 | (12,151 | ) | 76,343 | 35,964 | 8,631 | 44,595 | 120,938 | ||||||||||||||||||||
Income (loss) from operations | (5,288 | ) | 290 | (4,998 | ) | 11,403 | (8,631 | ) | 2,772 | (2,226 | ) | |||||||||||||||||
Contributions and deferred gifts. | 3,389 | (3,389 | )(5) | — | — | — | — | — | ||||||||||||||||||||
Interest income | 1,590 | (1,590 | )(5) | — | — | — | — | — | ||||||||||||||||||||
Net unrealized and realized gains (losses) on investments | 75 | (75 | )(5) | — | — | — | — | — | ||||||||||||||||||||
Interest expense | (5,329 | ) | (1,667 | )(6) | (6,996 | ) | (4,827 | ) | (4,373 | ) | (9,200 | )(6) | (16,196 | )(6) | ||||||||||||||
Interest expense— affiliate | (2,090 | ) | 2,090 | (5) | — | — | — | — | — | |||||||||||||||||||
Amortization of deferred financing costs | (290 | ) | 290 | (5) | — | — | — | — | — | |||||||||||||||||||
Net income (loss) | $ | (7,943 | ) | $ | (4,051 | ) | $ | (11,994 | ) | $ | 6,576 | $ | (13,004 | ) | $ | (6,428 | ) | $ | (18,422 | ) | ||||||||
Three months ended September 30, 2005: | ||||||||||||||||||||||||||||
Revenue: | ||||||||||||||||||||||||||||
Resident fees | $ | — | $ | — | $ | — | $ | 338 | $ | — | $ | 338 | $ | 338 | ||||||||||||||
Total revenues | — | — | — | 338 | — | 338 | 338 | |||||||||||||||||||||
Operating Expenses: | ||||||||||||||||||||||||||||
Facility operating | — | — | — | 156 | — | 156 | 156 | |||||||||||||||||||||
Management fees— affiliate | — | — | — | — | — | — | — | |||||||||||||||||||||
Facility lease expenses | — | — | — | 83 | — | 83 | 83 | (7) | ||||||||||||||||||||
Depreciation and amortization | — | — | — | — | (275 | ) | (275 | ) | (275 | )(8) | ||||||||||||||||||
Total operating expenses | — | — | 239 | (275 | ) | (36 | ) | (36 | ) | |||||||||||||||||||
Income from operations | — | — | — | 99 | 275 | 374 | 374 | |||||||||||||||||||||
Interest expense | — | — | — | — | 17 | 17 | 17 | (6) | ||||||||||||||||||||
Net income (loss) | $ | — | $ | — | $ | — | $ | 99 | $ | 292 | $ | 391 | $ | 391 | ||||||||||||||
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FORTRESS CCRC PORTFOLIO(4) | PRUDENTIAL PORTFOLIO(4) | |||||||||||||||||||||||||||
PRO FORMA | PRO FORMA | |||||||||||||||||||||||||||
HISTORICAL(1) | ADJUSTMENTS | NET | HISTORICAL(1) | ADJUSTMENTS | NET | TOTAL | ||||||||||||||||||||||
Nine months ended September 30, 2005: | ||||||||||||||||||||||||||||
Revenue: | ||||||||||||||||||||||||||||
Resident fees | $ | 20,266 | $ | (1,908 | )(2) | $ | 18,358 | $ | 23,525 | $ | — | $ | 23,525 | $ | 41,883 | |||||||||||||
Total revenues | 20,266 | (1,908 | ) | 18,358 | 23,525 | — | 23,525 | 41,883 | ||||||||||||||||||||
Operating Expenses: | ||||||||||||||||||||||||||||
Facility operating | 16,574 | (1,986 | )(2) | 14,588 | 14,210 | (1,150 | )(3) | 13,060 | 27,648 | |||||||||||||||||||
Management fees— affiliate | 868 | — | 868 | 1,690 | — | 1,690 | 2,558 | (7) | ||||||||||||||||||||
Facility lease expenses | — | — | — | 500 | 83 | 583 | 583 | |||||||||||||||||||||
Depreciation and amortization | 1,990 | 1,733 | 3,723 | 2,396 | 4,030 | 6,426 | 10,149 | (8) | ||||||||||||||||||||
Total operating expenses | 19,432 | (253 | ) | 19,179 | 18,796 | 2,963 | 21,759 | 40,938 | ||||||||||||||||||||
Income (loss) from operations | 834 | (1,655 | ) | (821 | ) | 4,729 | (2,963 | ) | 1,766 | 945 | ||||||||||||||||||
Contributions and deferred gifts. | 71 | (71 | )(5) | — | — | — | — | — | ||||||||||||||||||||
Interest income | 455 | (455 | )(5) | — | — | — | — | — | ||||||||||||||||||||
Net unrealized and realized gains (losses) on investments | (158 | ) | 158 | (5) | — | — | — | — | — | |||||||||||||||||||
Interest expense | (1,013 | ) | (620 | )(6) | (1,633 | ) | (2,715 | ) | (1,668 | )(6) | (4,383 | ) | (6,016 | )(6) | ||||||||||||||
Interest expense— affiliate | (675 | ) | 675 | (5) | — | — | — | — | — | |||||||||||||||||||
Gain on sale of real estate | — | — | — | 123,678 | (123,678 | )(5) | — | — | ||||||||||||||||||||
Amortization of deferred financing costs | (72 | ) | 72 | (5) | — | — | — | — | — | |||||||||||||||||||
Net income (loss) | $ | (558 | ) | $ | (1,896 | ) | $ | (2,454 | ) | $ | 125,692 | $ | (128,309 | ) | $ | (2,617 | ) | $ | (5,071 | ) | ||||||||
(1) | Represents the historical operations at all eight Fortress CCRC Portfolio facilities purchased in April and May 2005 and eight Prudential Portfolio facilities purchased in June and July 2005 for the periods presented. See the historical financial statements of Fortress CCRC Portfolio and Prudential Portfolio included in the prospectus filed with the SEC on November 23, 2005. | |
(2) | Represents the historical property revenue and facility operating expenses for the two Fortress CCRC Portfolio facilities (Heritage Crossings and Heatherwood Village) that were sold in the third quarter of 2005 by the Brookdale Facility Group. | |
(3) | Represents non-recurring operating expenses such as incentive bonus payments and professional fees that were incurred in the first and second quarter of 2005 as results of the sale of the facilities: |
Nine Months | ||||
Ended | ||||
September | ||||
30, 2005 | ||||
As reported | $ | 14,210 | ||
Less, non-recurring | (1,150 | ) | ||
Net recurring operating expenses | $ | 13,060 | ||
(4) | See the historical financial statements of Fortress CCRC Portfolio and Prudential Portfolio included in the prospectus filed with the SEC on November 23, 2005. Revenue and operating expenses for these facilities subsequent to their purchase are included in the combined financial statements of Brookdale Facility Group. | |
(5) | Reflects historical operations that would not be consistent for our ownership for the year ended December 31, 2004 and the three and nine months ended September 30, 2005, including the permanent impairment charge recognized by the prior owner of the Fortress CCRC Portfolio (impairment was recognized based upon FIG’s offer to purchase the facilities and the related purchase price); contributions and deferred gifts since we are not a non-profit entity, investment income and net unrealized and realized gains (losses) on investments since we did not purchase the investments, amortization of deferred financing costs related to the prior owners’ debt, and gain on sale of real estate recognized by the prior owner of the Prudential Portfolio related to FIG’s purchase of the facilities. | |
(6) | The following represents the additional costs of the Acquisition facilities under our ownership: |
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Nine Months | Three Months | |||||||||||
Year Ended | Ended | Ended | ||||||||||
December 31, | September 30, | September 30, | ||||||||||
2004 | 2005 | 2005 | ||||||||||
Interest Expense: | ||||||||||||
Reflects interest expense for debt incurred in connection with the acquisition of the properties, net of historical interest incurred and included in the combined historical financial statements of Brookdale Facility Group: |
Effective | ||||||||||||||||||||
Amount | Rate | |||||||||||||||||||
Fortress CCRC | $ | (6,996 | ) | $ | (1,633 | ) | $ | 26 | ||||||||||||
Portfolio | $105.8 million | 6.615 | %(a) | |||||||||||||||||
Prudential Portfolio | $171.0 million | 5.38 | % | (9,200 | ) | (4,383 | ) | (9 | ) | |||||||||||
$ | (16,196 | ) | $ | (6,016 | ) | $ | 17 | |||||||||||||
(a) Effective rate reflects interest rate under terms of a swap agreement.
Nine Months | Three Months | |||||||||||
Year Ended | Ended | Ended | ||||||||||
December 31, | September 30, | September 30, | ||||||||||
2004 | 2005 | 2005 | ||||||||||
(7) General and Administrative Expense: | ||||||||||||
The pro forma statements of operations reflect actual general and administrative expense (management fees) under prior owner. Brookdale Facility Group did not hire any management or any corporate employees from the prior owner. We hired new employees for both the Fortress CCRC Portfolio and Prudential Portfolio subsequent to their purchase. As a result, general and administrative expenses are expected to be reduced significantly for the Fortress CCRC Portfolio and Prudential Portfolio under our ownership and management. Our estimated expenses will primarily consist of additional salaries and wages for new employees as follows: | ||||||||||||
Fortress CCRC Portfolio | $ | 1,300 | $ | 325 | $ | — | ||||||
Prudential Portfolio | 700 | 350 | — | |||||||||
$ | 2,000 | $ | 675 | $ | — | |||||||
(8) Depreciation and Amortization Expense:
Reflects depreciation and amortization expense on the purchase of the Fortress CCRC Portfolio and Prudential Portfolio, based on the purchase price allocation as follows:
Nine Months | Three Months | |||||||||||||||||||||
Year Ended | Ended | Ended | ||||||||||||||||||||
Estimated | December 31, | September 30, | September 30, | |||||||||||||||||||
Amount | Life | 2004 | 2005(b) | 2005(b) | ||||||||||||||||||
Land | $58.3 million | n/a | $ | — | $ | — | $ | — | ||||||||||||||
Building and improvements | $390.8 million | 40 years | 9,769 | 3,493 | (236 | ) | ||||||||||||||||
Furniture, fixtures and equipment | $8.6 million | 7 years | 1,234 | 387 | (39 | ) | ||||||||||||||||
Lease intangible(a) | $18.0 million | 1 year | 18,000 | 6,058 | — | |||||||||||||||||
Amortization of deferred costs | 620 | 211 | — | |||||||||||||||||||
$ | 29,623 | $ | 10,149 | $ | (275 | ) | ||||||||||||||||
(a) | Reflects purchase price allocated to in-place tenant leases at each of the acquired facilities based upon a vacancy component. Purchase price allocated represent the fair value assigned to the in place leases at date of acquisition. We typically do not pay commissions or provide incentives in leasing our units. The individual leases were considered at market rate due to the short-term nature (one year or less in duration). |
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(b) | Depreciation expense adjustment is net of amounts recorded in the combined historical financial statements of Brookdale Facility Group. |
(D) Initial Public Offering Adjustments
Balance Sheet
Following is a summary of adjustments to reflect the net proceeds received from the initial public offering and the use of proceeds:
Gross offering proceeds from sale of 11.1 million common shares at $19 per share | $ | 210,368 | ||||||
Less sale of 4.2 million common shares by minority stockholder of Alterra (a company within the Brookdale Facility Group) | (79,268 | ) | ||||||
Less offering costs and underwriters’ discount | (14,779 | ) | ||||||
Net proceeds from offering | 116,321 | |||||||
Retirement of certain indebtedness and other: | ||||||||
i) Retirement of mortgage and other debt(2) | (60,746 | ) | ||||||
ii) Repayment of lessor advances(1) | (2,228 | ) | ||||||
iii) Purchase price of currently leased facilities, including fees and expenses. | $ | (20,700 | ) | |||||
Estimated debt financing to be obtained at closing(2) | 13,000 | |||||||
Release of cash and investments — restricted deposit | 1,000 | (6,700 | ) | |||||
Total use of proceeds | (69,674 | ) | ||||||
Net excess cash from offering | $ | 46,647 | ||||||
(1) | The amount is classified into two accounts in the condensed consolidated balance sheet: Other Assets for $1,006 representing payments made by the lessor pursuant to the case that will be deferred and amortized by us and Other Liabilities for $1,222 representing repayment of funds advanced to us. | |
(2) | The mortgage and other debt is classified as follows in the condensed consolidated balance sheet: |
Retired debt | $ | (60,746 | ) | |
Estimated new debt | 13,000 | |||
Net retired debt | (47,746 | ) | ||
Less-current portion retired | 1,796 | |||
Long-term debt retired | $ | (45,950 | ) | |
In connection with our offering, Brookdale Facility Group was contributed to the Company on September 30, 2005 with affiliates of FIG and the Minority Shareholders receiving common stock of the Company as follows:
Brookdale | 20,000,000 | |||
Alterra | 18,000,000 | |||
Fortress CCRC Portfolio | 8,250,000 | |||
Prudential Portfolio | 11,750,000 |
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(E) Initial Public Offering Adjustments — Statements of Operations
The following represents adjustments to reflect the effect of the offering transactions on historical operations:
Nine Months | Three Months | |||||||||||
Ended | Ended | |||||||||||
Year Ended | September 30, | September 30, | ||||||||||
December 31, 2004 | 2005 | 2005 | ||||||||||
Facility lease expense: | ||||||||||||
Reflects net reduction in actual historical lease expense from our offering related transactions: | ||||||||||||
Purchase of leased facilities | $ | (1,528 | ) | $ | (1,308 | ) | $ | (436 | ) | |||
Repayment of lessor advances and costs | (351 | ) | (266 | ) | (89 | ) | ||||||
Adjustment for redesignation of interest rate swap to hedge floating rate lease payment | 706 | 525 | 175 | |||||||||
Reduction in amortization of deferred gain related to minority interest step-up | 5,306 | 4,051 | 1,398 | |||||||||
$ | 4,133 | $ | 3,002 | $ | 1,048 | |||||||
Depreciation and amortization expense:
Depreciation and amortization expense reflects depreciation and amortization expense on purchased lease facilities with offering proceeds and the Brookdale Facility Group minority ownership interest adjustment using the straight line method over our estimated useful lives.
Amount | |||||||||||||||||||||||||||||
Minority | Nine Months | Three Months | |||||||||||||||||||||||||||
Purchased | Shareholders | Year Ended | Ended | Ended | |||||||||||||||||||||||||
Leased | Interest | Estimated | December 31, | September 30, | September 30, | ||||||||||||||||||||||||
Facilities | Adjustment(4) | Total | Life | 2004(3) | 2005(3) | 2005(3) | |||||||||||||||||||||||
Land | $ | 1,976 | $ | 2,799 | $ | 4,775 | N/A | $ | — | $ | — | $ | — | ||||||||||||||||
Buildings and improvements | 17,196 | 25,725 | 42,921 | 40 years | 1,073 | 805 | 268 | ||||||||||||||||||||||
Furniture, fixtures and equipment | 593 | 2,892 | 3,485 | 7 years | 498 | 373 | 125 | ||||||||||||||||||||||
Lease intangibles(1) | 935 | 6,520 | 7,455 | 1 year | 7,455 | 5,591 | 1,864 | ||||||||||||||||||||||
Operating lease costs(2) | — | 138,077 | 138,077 | (2 | ) | 9,402 | 7,051 | 2,350 | |||||||||||||||||||||
Alterra Minority Adjustment(3) | — | — | — | — | 4,216 | 2,109 | — | ||||||||||||||||||||||
Other | — | — | — | N/A | (1,039 | ) | (751 | ) | (214 | ) | |||||||||||||||||||
$ | 20,700 | $ | 176,013 | $ | 196,713 | $ | 21,605 | $ | 15,178 | $ | 4,393 | ||||||||||||||||||
(1) | Reflects costs allocated to in-place tenant leases of each facility based upon a vacancy component. Costs allocated represent the fair value assigned to the in-place leases at the date of acquisition. We typically do not pay commissions or provide incentives in leasing our units. The individual leases were considered at market due to their short-term nature (one year or less in duration). | |
(2) | Reflects costs allocated to the facilities we operate under long-term operating leases. Fair value was determined based on discounted future cash flows for the initial term of each lease. Costs are amortized over the term of the lease. | |
(3) | In June 2005, Fortress purchased 50% of a Minority Shareholder’s ownership in Alterra. The purchase adjustment has been reflected in the historical financial statements from the date of purchase. The adjustment represents depreciation expense for periods prior to the purchase based upon building and improvements of $8,075, furniture and equipment of $1,258, lease intangibles of $1,675 and operating leases of $30,055 over the estimated lives described above. |
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(4) | Reflects the amounts recorded in the Company’s historical consolidated balance sheet as of September 30, 2005, related to the value of common stock issued to the Minority Shareholders for their contributed interest in the Brookdale Facility Group. See note 1 to the historical financial statements of Brookdale Senior Living Inc. included in the prospectus filed with the SEC on November 23, 2005. |
Interest Expense:
Reflects a net reduction in interest expense (debt) from our offering-related transactions:
Nine Months | Three Months | |||||||||||||||||||
Year Ended | Ended | Ended | ||||||||||||||||||
Effective | December 31, | September 30, | September 30, | |||||||||||||||||
Amount | Rate | 2004 | 2005 | 2005 | ||||||||||||||||
Retirement of existing debt | $ | 60,746 | 7.53 | % | $ | 4,717 | $ | 3,556 | $ | 1,186 | ||||||||||
New debt related to purchase of leased facilities | $ | 13,000 | 5.65 | % | (735 | ) | (551 | ) | (183 | ) | ||||||||||
$ | 3,982 | $ | 3,005 | $ | 1,003 | |||||||||||||||
(F) Other Adjustments — Statements of Operations
(E) Reflects net interest expense in connection with the refinancing of facilities that closed December 2004 and March 30, 2005, respectively, interest rate swaps that closed March 2005 and elimination of other interest:
Nine Months | Three Months | |||||||||||||||||||
Year Ended | Ended | Ended | ||||||||||||||||||
Effective | December 31, | September 30, | September 30, | |||||||||||||||||
Amount | Rate | 2004 | 2005 | 2005 | ||||||||||||||||
New mortgage loans | $182.0 million | 8.15 | %(1) | $ | (14,823 | ) | $ | (3,706 | ) | $ | — | |||||||||
Mortgage loans repaid | $178.8 million | 9.61 | % | 17,189 | 4,404 | — | ||||||||||||||
Additional interest expense on refinancing and interest rate swap that closed December 2004 and March 2005, respectively | (2,449 | ) | (325 | ) | — | |||||||||||||||
Other | — | 438 | 189 | |||||||||||||||||
$ | (83 | ) | $ | 811 | $ | 189 | ||||||||||||||
Loss on extinguishment of debt (write-off of unamortized deferred financing costs) related to the above refinancings | $ | (788 | ) | $ | (172 | ) | $ | — | ||||||||||||
Net amortization of deferred costs related to the above refinancings, net of expenses amortized in the historical financial statements | $ | 1,000 | $ | 41 | $ | — | ||||||||||||||
(1) Reflects interest rate under terms of a swap agreement.
Nine Months | Three Months | |||||||||||
Year Ended | Ended | Ended | ||||||||||
December 31, | September 30, | September 30, | ||||||||||
2004 | 2005 | 2005 | ||||||||||
(F) Reflects operating and general and administrative expense reductions not included in the accompanying unaudited pro forma condensed consolidated financial statements: | ||||||||||||
Operating expense reductions as a result of Signed contracts with vendors such as food and insurance | $ | (8,747 | ) | $ | (6,560 | ) | $ | (2,187 | ) | |||
General and administrative expense reductions As a result of identified corporate office positions and function to be eliminated or consolidated and signed information technology contracts | (5,135 | ) | (3,851 | ) | (1,284 | ) | ||||||
$ | (13,882 | ) | $ | (10,411 | ) | $ | (3,471 | ) | ||||
Although we expect to achieve significant cost savings through a reduction in operating and general and administrative costs and reduction in corporate employees, such amounts are not reflected in the accompanying
21
unaudited pro forma financial statements.
Nine Months | Three Months | |||||||||||
Year Ended | Ended | Ended | ||||||||||
December 31, | September 30, | September 30, | ||||||||||
2004 | 2005 | 2005 | ||||||||||
(G) Reflects general and administration expense expected to be incurred to operate as a public company including salaries, wages and benefits for additional staff, professional fees and other corporate level activity. Such amounts are based on estimates of staffing levels and services from third parties or quotes from our vendors. We have included a pro forma adjustment as our best estimate of these additional costs | $ | 2,476 | $ | 1,857 | $ | 619 | ||||||
(H) Reflects stock compensation expense included in general and administrative expense in connection with grants under the Restricted Stock Plan. Certain executives of Brookdale and Alterra were granted shares or member interests that will be converted to 2.5 million shares of the Company’s common stock upon completion of the merger. The shares initially vested on the grant date (August 2005) in the range of 0-50% for a total of 973,684 shares subject to the employees remaining continuously employed through our offering and the remaining 1,551,721 shares will vest over a five-year period following the offering. The estimated compensation expense to be recognized on the vested shares of $18.5 million based on an initial value of $19.00 per share is recorded as compensation expense from the date of grant to the expected initial public offering date (estimated to be in the fourth quarter 2005). For the three and nine months ended September 30, 2005, the Company recognized $10.0 million of compensation expense for the initial vested shares. Additional compensation expense for initial grant | $ | — | $ | 8,907 | $ | 8,907 | ||||||
Annual compensation expense for the remaining shares to vest, recognized on a straight-line basis (five year vesting period), net of estimated forfeitures | 5,307 | 3,980 | 1,327 | |||||||||
Total compensation expense | $ | 5,307 | $ | 12,887 | $ | 10,234 | ||||||
(I) Reflects estimated management fees for managing one Fortress CCRC Portfolio facility sold July 1, 2005 and now under a management agreement. Fee is based on 5% of gross revenues and entrance fee receipts | $ | 250 | $ | 188 | $ | 63 | ||||||
(J) Reflects elimination of change in fair value of derivatives for forward interest rate swaps terminated and replaced by new interest rate swaps on March 30, 2005 (note (E)) | $ | (3,176 | ) | $ | (4,080 | ) | $ | 67 | ||||
(K) Reflects estimated additional interest income from cash and cash equivalents and cash and investments — restricted held in interest bearing accounts pursuant to the terms of the related agreement | $ | 1,515 | $ | 1,760 | $ | 587 | ||||||
(L) The net effect of the acquisition, initial public offering and other pro forma adjustments results in additional losses for GAAP purposes. The net effect of these losses would result in no tax provision (benefit) as all losses would be included in the valuation allowance as we are in a net deferred tax asset position primarily due to loss carryforwards. We have applied a valuation allowance against the deferred tax assets. |
Other Adjustments — Balance Sheet:
(M) On September 30, 2005, the Company declared and paid on October 7, 2005, a dividend of $14,355.
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Pro Forma Income (Loss) Per Share
Shares used to calculate unaudited pro forma basic and diluted income (loss) from continuing operations per share were adjusted to reflect shares issued to FIG and the Minority Shareholders, for their contribution of the Brookdale Facility Group (“Historical Shares” — 58,000,000 shares), including management’s restricted stock (973,684 shares to be vested prior to our offering and 1,551,721 shares unvested), and the shares issued as part of our offering that were used to retire debt and purchase the leased facility (“Offering Shares” — 4,429,000 shares). We have also included an earnings per share calculation (“All Shares”) that includes the additional shares issued in the offering (“Additional Offering Shares” — 2,471,000 shares) to show the effect on earnings for all shares outstanding after the completion of our offering.
Historical | Offering | Pro Forma | ||||||||||
Weighted average number of shares of common stock outstanding — basic | 56,448 | 4,429 | 60,877 | |||||||||
Additional shares issued for management’s unvested restricted stock(1) | — | — | — | |||||||||
Weighted average number of shares of common stock outstanding — diluted | 56,448 | 4,429 | 60,877 | |||||||||
Additional Offering Shares | — | 2,471 | 2,471 | |||||||||
Weighted average number of shares of common stock outstanding — All Shares | 56,448 | 6,900 | 63,348 | |||||||||
(1) | A total of 1,551,721 shares related to the unvested portion of management’s restricted stock plan have been excluded since their inclusion would be antidilutive. |
(G) Post IPO Acquisitions
Subsequent to the IPO, we acquired the Chambrel portfolio (“CMCP – Properties, Inc.”) and the Merrill Gardens portfolio which consisted of six and four facilities, respectively. The Chambrel portfolio was previously leased by us. The pro forma adjustments below reflect the initial purchase price allocations. |
Chambrel | Merrill Gardens | Total | ||||||||||
Assets: | ||||||||||||
Cash | $ | (50,758 | ) | $ | (6,381 | ) | $ | (57,139 | ) | |||
Cash and investments-restricted | 6,162 | — | 6,162 | |||||||||
Other current assets | (1,006 | ) | — | (1,006 | ) | |||||||
Total current assets | (45,602 | ) | (6,381 | ) | (51,983 | ) | ||||||
Property, plant and equipment | 160,499 | 16,686 | 177,185 | |||||||||
Other long term assets | — | 695 | 695 | |||||||||
Total assets | $ | 114,897 | $ | 11,000 | $ | 125,897 | ||||||
Liabilities and stockholders’ equity: | ||||||||||||
Accounts payable and accrued expenses | $ | (3,081 | ) | $ | — | $ | (3,081 | ) | ||||
Total current liabilities | (3,081 | ) | — | (3,081 | ) | |||||||
Mortgage and other indebtedness | 130,841 | 11,000 | 141,841 | |||||||||
Deferred gain | (8,807 | ) | — | (8,807 | ) | |||||||
Other long term liabilities | (4,056 | ) | — | (4,056 | ) | |||||||
Total liabilities | 114,897 | 11,000 | 128,418 | |||||||||
Stockholders’ equity | — | — | — | |||||||||
Total liabilities and stockholders’ equity | $ | 114,897 | $ | 11,000 | $ | 125,897 | ||||||
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Statements of Operations:
The Chambrel portfolio and Merrill Gardens portfolio acquisitions were completed in December 2005. The operations of the Chambrel portfolio are reflected in the historical statement of operations as the portfolio was previously leased by us. Accordingly, the Chambrel adjustments below represent the adjustments required as the result of the purchase of the facilities. The pro forma adjustments below reflect the historical operations of the Merrill Gardens portfolio for year ended December 31, 2004, and the three and nine months ended September 30, 2005:
Chambrel | Merrill Gardens | |||||||||||||||||||
Pro Forma | Pro Forma | |||||||||||||||||||
Adjustments | Historical | Adjustments | Net | Total | ||||||||||||||||
Year ended December 31, 2004 | ||||||||||||||||||||
Revenue: | ||||||||||||||||||||
Resident fees | $ | — | $ | 5,118 | $ | — | $ | 5,118 | $ | 5,118 | ||||||||||
Total revenue | — | 5,118 | — | 5,118 | 5,118 | |||||||||||||||
Operating expenses: | ||||||||||||||||||||
Facility operating | — | 3,710 | — | 3,710 | 3,710 | |||||||||||||||
Facility lease expense | (9,498 | ) | — | — | — | (9,498 | ) | |||||||||||||
Depreciation and amortization | 9,446 | 339 | 871 | 1,210 | 10,656 | |||||||||||||||
Total operating expenses | (52 | ) | 4,049 | 871 | 4,920 | 4,868 | ||||||||||||||
Income (loss) from operations | 52 | 1,069 | (871 | ) | 198 | 250 | ||||||||||||||
Interest expense | (4,522 | ) | (920 | ) | 297 | (623 | ) | (5,145 | ) | |||||||||||
Loss on extinguishment of debt | (2,845 | ) | — | — | — | (2,845 | ) | |||||||||||||
Net income (loss) | $ | (7,315 | ) | $ | 149 | $ | (574 | ) | $ | (425 | ) | $ | (7,740 | ) | ||||||
Nine months ended September 30, 2005 | ||||||||||||||||||||
Revenue: | ||||||||||||||||||||
Resident fees | $ | — | $ | 4,121 | $ | — | $ | 4,121 | $ | 4,121 | ||||||||||
Total revenue | — | 4,121 | — | 4,121 | 4,121 | |||||||||||||||
Operating expenses: | �� | |||||||||||||||||||
Facility operating | — | 2,844 | — | 2,844 | 2,844 | |||||||||||||||
Facility lease expense | (7,946 | ) | — | — | — | (7,946 | ) | |||||||||||||
Depreciation and amortization | 6,865 | 253 | 654 | 907 | 7,772 | |||||||||||||||
Total operating expenses | (1,081 | ) | 3,097 | 654 | 3,751 | 2,670 | ||||||||||||||
Income (loss) from operations | 1,081 | 1,024 | (654 | ) | 370 | 1,451 | ||||||||||||||
Interest expense | (4,286 | ) | (665 | ) | 197 | (468 | ) | (4,754 | ) | |||||||||||
Net income (loss) | $ | (3,205 | ) | $ | 359 | $ | (457 | ) | $ | (98 | ) | $ | (3,303 | ) | ||||||
Three months ended September 30, 2005 | ||||||||||||||||||||
Revenue: | ||||||||||||||||||||
Resident fees | $ | — | $ | 1,363 | $ | — | $ | 1,363 | $ | 1,363 | ||||||||||
Total revenue | — | 1,363 | — | 1,363 | 1,363 | |||||||||||||||
Operating expenses: | ||||||||||||||||||||
Facility operating | — | 942 | — | 942 | 942 | |||||||||||||||
Facility lease expense | (2,689 | ) | — | — | — | (2,689 | ) | |||||||||||||
Depreciation and amortization | 2,268 | 84 | 218 | 302 | 2,570 | |||||||||||||||
Total operating expenses | (421 | ) | 1,026 | 218 | 1,244 | 823 | ||||||||||||||
Income (loss) from operations | 421 | 337 | (218 | ) | 119 | 540 | ||||||||||||||
Interest expense | (1,458 | ) | (224 | ) | 68 | (156 | ) | (1,614 | ) | |||||||||||
Net income (loss) | $ | (1,037 | ) | $ | 113 | $ | (150 | ) | $ | (37 | ) | $ | (1,074 | ) | ||||||
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Depreciation and Amortization Expense:
Reflects depreciation expense on the purchased facilities on a straight line basis over estimated useful lives.
Other | Year Ended | Nine Months Ended | Three Months Ended | ||||||||||||||||||||||||||||||||||
Chambrel | Merrill | Total Purchased | Depreciable | Estimated | December 31, | September 30, | September 30, | ||||||||||||||||||||||||||||||
Portfolio | Portfolio | Facilities | Basis(a) | Total Basis | Life | 2004 | 2005 | 2005 | |||||||||||||||||||||||||||||
Land | $ | 14,989 | $ | 3,935 | $ | 18,924 | $ | 4,261 | $ | 23,185 | N/A | $ | — | $ | — | $ | — | ||||||||||||||||||||
Buildings and Improvements | 135,216 | 11,583 | 146,799 | 38,415 | 185,214 | 40 years | 4,630 | 3,473 | 1,158 | ||||||||||||||||||||||||||||
Furniture, fixtures and equipment | 3,197 | 289 | 3,486 | 914 | 4,400 | 7 years | 629 | 471 | 156 | ||||||||||||||||||||||||||||
Lease intangibles(b) | 7,097 | 879 | 7,976 | — | 7,976 | 1 years | 7,976 | 5,982 | 1,994 | ||||||||||||||||||||||||||||
Depreciation previously recognized | — | — | — | — | — | (2,579 | ) | (2,154 | ) | (738 | ) | ||||||||||||||||||||||||||
$ | 160,499 | $ | 16,686 | $ | 177,185 | $ | 43,590 | $ | 220,775 | $ | 10,656 | $ | 7,772 | $ | 2,570 | ||||||||||||||||||||||
(a) | Reflects minority interest ownership adjustment allocated to the Chambrel portfolio. In addition, amount includes leasehold improvements in place and purchased when Chambrel was an operating lease. | ||
(b) | Reflects purchase price allocated to in-place tenant leases at each of the acquired facilities based upon a vacancy component. Purchase price allocated represent the fair value assigned to the in place leases at date of acquisition. We typically do not pay commissions or provide incentives in leasing our units. The individual leases were considered at market rate due to the short-term nature (one year or less in duration). |
Lease expense:
Reflects a net reduction in lease expense related to the purchase of the Chambrel portfolio:
Nine Months | Three Months | |||||||||||
Year Ended | Ended | Ended | ||||||||||
December 31, 2004 | September 30, 2005 | September 30, 2005 | ||||||||||
Actual lease expense | $ | (10,037 | ) | $ | (8,351 | ) | $ | (2,824 | ) | |||
Deferred gain amortization | 539 | 405 | 135 | |||||||||
Total | $ | (9,498 | ) | $ | (7,946 | ) | $ | (2,689 | ) | |||
Interest expense:
Reflects an increase in interest expense related to the purchase of the facilities:
Nine Months | Three Months | |||||||||||||||||||
Effective | Year Ended | Ended | Ended | |||||||||||||||||
Amount | Rate | December 31, 2004 | September 30, 2005 | September 30, 2005 | ||||||||||||||||
Chambrel portfolio tax-exempt bonds | 100,841 | Variable | $ | 2,696 | $ | 2,917 | $ | 1,002 | ||||||||||||
New debt related to refinancing | $ | 30,000 | 6.085 | % | 1,826 | 1,369 | 456 | |||||||||||||
Merrill Gardens | 11,000 | Variable | 623 | 468 | 156 | |||||||||||||||
Total | $ | 141,841 | $ | 5,145 | $ | 4,754 | $ | 1,614 | ||||||||||||
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Loss on Sale:
Reflects loss on extinguishment of debt in conjunction with refinancing of debt assumed in the Chambrel purchase:
Nine Months | Three Months | ||||||||||||
Year Ended | Ended | Ended | |||||||||||
December 31, 2004 | September 30, 2005 | September 30, 2005 | |||||||||||
Write-off of deferred costs | $ | (324 | ) | $ | — | $ | — | ||||||
Prepayment fee incurred for early debt payoff | (2,521 | ) | — | ||||||||||
$ | (2,845 | ) | $ | — | $ | — | |||||||
26