Exhibit 99.5
CC3 ACQUISITION, LLC
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 2013 (UNAUDITED) AND DECEMBER 31, 2012
| June 30, 2013 | December 31, | |||||||
| (unaudited) | 2012 | |||||||
ASSETS | ||||||||
PROPERTY AND EQUIPMENT: | ||||||||
Land and land improvements | $ | 68,324,433 | $ | 68,262,391 | ||||
Building and building improvements | 549,459,770 | 548,934,910 | ||||||
Furniture, fixtures, and equipment | 18,750,777 | 18,394,875 | ||||||
Construction in progress | 1,106,507 | 670,660 | ||||||
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| 637,641,487 | 636,262,836 | |||||||
Less accumulated depreciation | (53,512,270 | ) | (42,647,192 | ) | ||||
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Property and equipment — net | 584,129,217 | 593,615,644 | ||||||
CASH AND CASH EQUIVALENTS | 6,313,610 | 11,608,102 | ||||||
RESTRICTED CASH | 9,467,939 | 7,574,763 | ||||||
ACCOUNTS RECEIVABLE — Net of allowance for doubtful accounts of $294,650 and $225,273 for 2013 and 2012, respectively | 1,403,963 | 1,263,494 | ||||||
RENT AND WORKING CAPITAL RECEIVABLE FROM AFFILIATES | 219,170 | 221,212 | ||||||
PREPAID EXPENSES AND OTHER ASSETS | 824,777 | 1,458,374 | ||||||
DEFERRED RENT RECEIVABLE | 2,333,664 | 2,298,285 | ||||||
DEFERRED FINANCING COSTS — Net of accumulated amortization of $6,807,344 and $5,445,873 for 2013 and 2012, respectively | 1,588,382 | 2,949,853 | ||||||
DEFERRED TAX ASSET | 1,101,563 | 911,418 | ||||||
BELOW MARKET LEASE INTANGIBLE—Net of accumulated amortization of $209,932 and $167,946 for 2013 and 2012, respectively | 2,890,068 | 2,932,054 | ||||||
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TOTAL | $ | 610,272,353 | $ | 624,833,199 | ||||
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LIABILITIES AND MEMBERS’ EQUITY | ||||||||
LIABILITIES: | ||||||||
Notes payable | $ | 434,940,000 | $ | 434,940,000 | ||||
Accrued interest | 2,041,678 | 2,123,345 | ||||||
Accounts payable and accrued expenses | 5,718,524 | 6,814,708 | ||||||
Payable to affiliates — net | 602,448 | 397,232 | ||||||
Payable to Sunrise Third partners (Note1) | 152,535 | 152,535 | ||||||
Deferred rent liability | 842,822 | 675,206 | ||||||
Deferred revenue | 5,908,174 | 5,901,050 | ||||||
Security and reservation deposits | 50,000 | 64,500 | ||||||
Above market lease intangible—Net of accumulated amortization of $14,098 and $11,278 for 2013 and 2012, respectively | 485,902 | 488,722 | ||||||
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Total liabilities | 450,742,083 | 451,557,298 | ||||||
MEMBERS’ EQUITY | 159,530,270 | 173,275,901 | ||||||
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TOTAL | $ | 610,272,353 | $ | 624,833,199 | ||||
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See notes to consolidated financial statements.
CC3 ACQUISITION, LLC
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2013 AND 2012 (UNAUDITED)
| 2013 | 2012 | |||||||
OPERATING REVENUE: | ||||||||
Resident fees | $ | 62,604,726 | $ | 59,171,804 | ||||
Lease income from affiliate | 8,728,700 | 8,863,644 | ||||||
Other income | 380,342 | 361,716 | ||||||
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Total operating revenue | 71,713,768 | 68,397,164 | ||||||
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OPERATING EXPENSES: | ||||||||
Labor | 27,237,737 | 25,586,119 | ||||||
Depreciation and amortization | 10,865,077 | 11,797,278 | ||||||
General and administrative | 3,262,247 | 2,772,282 | ||||||
Taxes and license fees | 3,162,122 | 3,038,828 | ||||||
Management fees to affiliate | 3,138,831 | 2,961,154 | ||||||
Food | 2,087,911 | 1,974,592 | ||||||
Insurance | 1,848,941 | 2,103,813 | ||||||
Utilities | 1,736,694 | 1,699,866 | ||||||
Repairs and maintenance | 1,506,571 | 1,570,825 | ||||||
Advertising and marketing | 1,031,664 | 880,756 | ||||||
Ancillary expenses | 725,581 | 598,113 | ||||||
Ground lease expense | 423,120 | 422,827 | ||||||
Bad debt | 208,443 | 310,436 | ||||||
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Total operating expenses | 57,234,939 | 55,716,889 | ||||||
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INCOME FROM OPERATIONS | 14,478,829 | 12,680,275 | ||||||
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OTHER EXPENSES (INCOME): | ||||||||
Interest expense | 16,153,508 | 16,225,662 | ||||||
Income tax expense | 70,094 | 138,517 | ||||||
Interest income | (268 | ) | (577 | ) | ||||
Other income | (19,022 | ) | (21,258 | ) | ||||
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Total other expenses | 16,204,312 | 16,342,344 | ||||||
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NET LOSS | $ | (1,725,483 | ) | $ | (3,662,069 | ) | ||
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See notes to consolidated financial statements.
CC3 ACQUISITION, LLC
CONSOLIDATED STATEMENTS OF CHANGES IN MEMBERS’ EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2013 (UNAUDITED)
| CNL Income Senior Holding, LLC | Sunrise Senior Living Investments, Inc. | Total | ||||||||||
MEMBERS’ EQUITY — December 31, 2012 | $ | 94,575,676 | $ | 78,700,225 | $ | 173,275,901 | ||||||
Distributions | (7,829,557 | ) | (4,190,591 | ) | (12,020,148 | ) | ||||||
Net loss | (1,035,290 | ) | (690,193 | ) | (1,725,483 | ) | ||||||
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MEMBERS’ EQUITY — June 30, 2013 | $ | 85,710,829 | $ | 73,819,441 | $ | 159,530,270 | ||||||
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See notes to consolidated financial statements.
CC3 ACQUISITION, LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2013 AND 2012 (UNAUDITED)
| 2013 | 2012 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net loss | $ | (1,725,483 | ) | $ | (3,662,069 | ) | ||
Adjustments to reconcile net loss to net cash provided by operating activities: | ||||||||
Depreciation | 10,865,077 | 11,701,751 | ||||||
Gain on sale of assets | (19,022 | ) | (21,258 | ) | ||||
Provision for bad debts | 208,443 | 310,436 | ||||||
Deferred rent receivable | (35,379 | ) | (384,614 | ) | ||||
Amortization of financing costs | 1,361,471 | 1,361,470 | ||||||
Deferred tax | (190,145 | ) | — | |||||
Amortization of resident lease intangible | —�� | 95,527 | ||||||
Amortization of net below market lease intangible | 39,166 | 39,013 | ||||||
Deferred rent liability | 167,616 | 167,616 | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | (348,912 | ) | 126,630 | |||||
Rent and working capital receivable from affiliates | 2,042 | 453,333 | ||||||
Prepaid expenses and other assets | 633,597 | 777,200 | ||||||
Accounts payable and accrued expenses | (971,982 | ) | (1,026,051 | ) | ||||
Income taxes payable | — | (362,638 | ) | |||||
Accrued interest | (81,667 | ) | (81,666 | ) | ||||
Payable to affiliates — net | 205,216 | (664,211 | ) | |||||
Reserve funds due to affiliates | — | (130,970 | ) | |||||
Deferred revenue | 7,124 | 74,761 | ||||||
Security and reservation deposits | (14,500 | ) | (7,000 | ) | ||||
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Net cash provided by operating activities | 10,102,662 | 8,767,260 | ||||||
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CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Restricted cash | (1,893,176 | ) | (1,488,892 | ) | ||||
Purchases of property and equipment | (1,502,852 | ) | (1,736,949 | ) | ||||
Proceeds from sale of assets | 19,022 | 81,258 | ||||||
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Net cash used in investing activities | (3,377,006 | ) | (3,144,583 | ) | ||||
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CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Contributions | — | 3,106,467 | ||||||
Distributions | (12,020,148 | ) | (10,075,899 | ) | ||||
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Net cash used in financing activities | (12,020,148 | ) | (6,969,432 | ) | ||||
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NET DECREASE IN CASH AND CASH EQUIVALENTS | (5,294,492 | ) | (1,346,755 | ) | ||||
CASH AND CASH EQUIVALENTS — Beginning of year | 11,608,102 | 9,663,977 | ||||||
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CASH AND CASH EQUIVALENTS — End of period | $ | 6,313,610 | $ | 8,317,222 | ||||
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(Continued)
CC3 ACQUISITION, LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2013 AND 2012 (UNAUDITED)
| 2013 | 2012 | |||||||
SUPPLEMENTAL DISCLOSURE OF NONCASH INFORMATION: | ||||||||
Accrued capital expenditures | $ | 38,374 | $ | 104,255 | ||||
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||||
Cash paid for interest | $ | 14,863,415 | $ | 14,945,082 | ||||
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See notes to consolidated financial statements.
CC3 ACQUISITION, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2013 AND FOR THE SIX MONTHS ENDED JUNE 30, 2013 AND 2012 (UNAUDITED)
| 1. | ORGANIZATION |
CC3 Acquisition, LLC (the “Company”) was formed on November 5, 2010 under the laws of the state of Delaware as a limited liability company. The Company was organized to acquire 100% of the membership interests in Sunrise Third Senior Living Holdings, LLC (“Sunrise Third”) which owned and operated 29 assisted living facilities (collectively, the “Facilities”). At formation, its sole member was Sunrise Senior Living Investments, Inc. (“SSLII”), a wholly owned subsidiary of Sunrise Senior Living, Inc. (“SSLI” or “Sunrise”). On January 10, 2011, the Company acquired 100% of the membership interests in Sunrise Third and in conjunction with the transaction, CNL Income Senior Holding, LLC (“CNL”) contributed $134,865,252 and was admitted as a member of the Company. SSLII contributed cash of $9,910,592 in conjunction with the transaction along with its interest in Sunrise Third valued at fair value of approximately $79,999,576 (the “2011 Recapitalization”). The limited liability agreement (“LLC Agreement”) was amended and the capital accounts were adjusted to reflect the new ownership structure with CNL as the managing member owning 60% and SSLII owning 40%. The Company shall continue in full force and effect until January 10, 2041 unless sooner terminated under the terms of the LLC Agreement.
In conjunction with the 2011 Recapitalization, the Company obtained new debt of $435,000,000 as further described in Note 2.
Total consideration paid for Sunrise Third, including interests contributed, was $630,625,410 (excluding transaction costs). At the 2011 Recapitalization date, $374,379 was payable to the Sunrise Third partners for earnings prior to the 2011 Recapitalization. At June 30, 2013, $152,535 of the payable was still outstanding.
The LLC Agreement, effective January 10, 2011, details the commitments of the members and provides the procedures for the return of capital to the members with defined priorities. All net cash flow from operations and capital proceeds is to be distributed according to the priorities as specified in the agreements. Any member can require additional capital to cure an event of default or to avoid an event of default under the loan agreements. The members must mutually agree upon additional capital requests for all other circumstances, including funding for operating shortfalls if they are determined to be reasonably necessary to effectuate any cost or expense associated with the operation or maintenance of any Facility or as it may be contemplated under the management agreements of the Facilities. Contributions are made in proportion to the relative percentage interests of the member at the time of the request. Net income (loss) is allocated to the members in proportion to their relative percentage interests.
Sunrise has the option to purchase, exercisable in Sunrise’s sole discretion, one hundred percent (100%) of CNL’s ownership interest in the Company upon the expiration of the second Company Year per the LLC Agreement. If Sunrise exercises the purchase option at any time prior to the fourth Company Year, CNL will be paid a purchase price equal to the amount necessary to return to CNL a 13% internal rate of return on the CNL total capital contributions, after taking into account all amounts previously distributed to CNL. If Sunrise exercises the purchase option at any time on or after the fourth Company Year, CNL will be paid a purchase price equal to the amount necessary to return to CNL a 14% internal rate of return on the CNL total capital contributions.
As of June 30, 2013, the Company owns the following 29 Facilities:
| Operator Entity | Location | Date Opened | ||
| Sunrise Village House, LLC | Montgomery Village, Maryland | May 1993 | ||
| Sunrise Weston Assisted Living, LP | Weston, Massachusetts | December 1997 | ||
| Sunrise Flossmoor Assisted Living, LLC | Flossmoor, Illinois | November 1999 | ||
| Sunrise Gahanna Assisted Living, LLC | Gahanna, Ohio | March 1998 | ||
| Sunrise Third Tustin, SL, LP | Tustin, California | September 2000 | ||
| Sunrise Third Edgewater SL, LLC | Edgewater, New Jersey | October 2000 | ||
| Sunrise Third Alta Loma SL, LP | Alta Loma, California | January 2001 | ||
| Sunrise Chesterfield Assisted Living, LLC | Chesterfield, Missouri | October 2000 | ||
| Sunrise Third Claremont SL, LP | Claremont, California | December 2000 | ||
| Sunrise Third Holbrook SL, LLC | Holbrook, New York | June 2001 | ||
| Sunrise Third Crystal Lake SL, LLC | Crystal Lake, Illinois | February 2001 | ||
| Sunrise Third Gurnee SL, LLC | Gurnee, Illinois | May 2002 | ||
| Sunrise Third West Bloomfield SL, LLC | West Bloomfield, Michigan | August 2000 | ||
| Sunrise Third University Park SL, LLC | Colorado Springs, Colorado | February 2001 | ||
| East Meadow A.L., LLC | East Meadow, New York | March 2002 | ||
| Sunrise Third East Setauket SL, LLC | East Setauket, New York | June 2002 | ||
| Sunrise North Naperville Assisted Living, LLC | Naperville, Illinois | June 2002 | ||
| Sunrise Third Schaumburg SL, LLC | Schaumburg, Illinois | September 2001 | ||
| Sunrise Third Roseville SL, LLC | Roseville, Minnesota | December 2001 | ||
| Sunrise Third Lincroft SL, LLC | Lincroft, New Jersey | December 2001 | ||
| Sunrise Third Plainview SL, LLC | Plainview, New York | January 2002 | ||
| White Oak Assisted Living, LLC | Silver Spring, Maryland | March 2002 | ||
| Canoga Park Assisted Living, LLC | West Hills, California | June 2002 | ||
| Sunrise Basking Ridge Assisted Living, LLC | Basking Ridge, New Jersey | September 2002 | ||
| Sunrise Third Dix Hills SL, LLC | Dix Hills, New York | March 2003 | ||
| Sunrise Marlboro Assisted Living, LLC | Marlboro, New Jersey | January 2002 | ||
| Sunrise Belmont Assisted Living, LLC | Belmont, California | October 2002 | ||
| Sunrise Third West Babylon SL, LLC | West Babylon, New York | January 2003 | ||
| Sunrise Kennebunk ME Senior Living, LLC | Kennebunk, Maine | December 2005 |
The Company owns and operates the 23 Facilities that are not located in the State of New York (“Non-NY Facilities”) to provide senior living services. Senior living services include a residence, meals, and non-medical assistance to elderly residents for a monthly fee. The Non-NY Facilities’ services are generally not covered by health insurance and, therefore, monthly fees are generally payable by the residents, their family, or another responsible party.
The Company owns and leases the six Facilities located in the State of New York (“NY Facilities”) to Sunrise NY Tenant, LLC (“SRZ Tenant”), a wholly owned subsidiary of SSLI. SRZ Tenant has site control and cash surplus agreements with six limited liability companies (the “GWCs”) to operate the NY Facilities. The GWCs are ultimately controlled by SSLI with 2 of the 3 voting interests held by employees of Sunrise Senior Living Management, Inc. (“SSLMI”), a wholly owned subsidiary of SSLI.
On August 21, 2012, SSLI and Health Care REIT, Inc. (“HCN”) entered into an agreement for HCN to acquire all of the outstanding common stock of SSLI for $14.50 per share in an all-cash transaction.
On September 13, 2012, in conjunction with the August 21, 2012 agreement, Red Fox Management, LP (“Red Fox”), a new entity formed by Kohlberg Kravis Roberts & Co. L.P., Beecken Petty O’Keefe & Company and Coastwood Senior Housing Partners LLC, entered into a Membership Interest Purchase Agreement with SSLI to acquire SSLMI for approximately $130,000,000 with HCN investing approximately $26,000,000 for a 20% ownership interest. The Company has management agreements with SSLMI to manage the Facilities.
On January 9, 2013, Sunrise consummated the transactions with HCN and Red Fox. As part of the transaction, HCN acquired Sunrise’s equity interests in joint ventures that own 58 senior housing communities, including the Company. In addition, HCN announced the acceleration of all planned joint venture buyouts, including the Company.
On July 1, 2013, HCN closed on a purchase and sale agreement (“PSA”) with CNL. Pursuant to the PSA, HCN purchased CNL’s membership interests in the Company for a purchase price of approximately $144,880,000, including transaction costs.
| 2. | NOTES PAYABLE |
On January 10, 2011, the Company entered into a loan agreement to obtain new debt totaling $435,000,000 to finance the acquisition of the 29 Facilities. The loan agreement originally provided for a loan in the amount of $325,000,000 and three mezzanine loans totaling $110,000,000. The loans are secured by the Facilities and are subject to prepayment penalties if paid prior to August 2013. Payments required on the loan are guaranteed by SSLI and CNL Income Partners, LP, an affiliate of CNL. The loan agreement provides for an initial fixed interest rate of 6.76% and requires monthly interest-only payments until maturity in February 2014.
In March 2011, the loan agreement was amended to provide for the loan amount to be subdivided into five components with an aggregate interest rate of 6.11%. The amendments also changed the allocation of amounts financed under the three mezzanine loans and provided for varying interest rates for these loans. The weighted average of the interest rates for all loans remained at 6.76%.
A summary of loan terms and balances as of June 30, 2013 is as follows:
| Interest | Loan Balances as of | |||||||
| Loan Tranche | Rate | June 30, 2013 | ||||||
Loan | 6.11 | % | $ | 324,940,000 | ||||
Mezzanine A Loan | 8.00 | % | 40,000,000 | |||||
Mezzanine B Loan | 8.50 | % | 45,000,000 | |||||
Mezzanine C Loan | 10.15 | % | 25,000,000 | |||||
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Total | 6.76 | % | $ | 434,940,000 | ||||
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The Company is subject to non-financial covenants under the loan agreement. As of June 30, 2013, the Company was in compliance with all covenants.
The fair value of the Company’s notes payable has been estimated based on current rates offered for debt with the same remaining maturities and comparable collateralizing assets. Changes in assumptions or methodologies used to make estimates may have a material effect on the estimated fair value. The estimated fair value of the Company’s notes payable approximated their carrying value at June 30, 2013.
| 3. | SUBSEQUENT EVENTS |
On July 1, 2013, HCN closed on a PSA with CNL. Pursuant to the PSA, HCN purchased CNL’s membership interests in the Company for a purchase price of approximately $144,880,000, including transaction costs. The PSA was a result of exercising the purchase option under the LLC agreement as described in Note 1.
The Company reviewed subsequent events through September 12, 2013, the date the consolidated financial statements were issued.
