Exhibit 99.1
American Retirement Corporation
Reports Third Quarter and Year-to-Date 2005 Results
NASHVILLE, Tenn.--(BUSINESS WIRE)--Nov. 3, 2005--American
Retirement Corporation:
-- Reported diluted earnings per share of $.13 for the third
quarter versus a First Call estimate of $.12.
-- Free cash flow increased 123% for the third quarter to $5
million versus the prior year.
-- Occupancy averaged 94%, up from 93% for last year's third
quarter.
-- Completed acquisition of eight Epoch communities.
American Retirement Corporation (NYSE: ACR) today reported third
quarter 2005 diluted earnings of $.13 per share, compared with a loss
of $.27 per share for the prior year's third quarter.
Bill Sheriff, Chairman, President and CEO of the company,
commented, "The third quarter was another successful period for us. We
announced a large acquisition (which we closed yesterday), signed a
new management contract on a CCRC, continued to free up restricted
cash and had solid operating results. As announced today in a separate
release, we closed on the acquisition of the eight Epoch communities
yesterday. The transaction fits well with our current portfolio and
will be immediately accretive. We also completed transactions during
the quarter that released $9 million of restricted cash and we used
those funds, plus the company's positive cash flow, to improve our
balance sheet and to fund development. We started the construction on
a number of community expansions and will begin the construction of
several new communities during the fourth quarter."
"Again, our operations showed strong year over year increases in
revenue and operating contribution with occupancies holding strong and
ancillary services expanding nicely. We have been fortunate with
Hurricanes Rita and Wilma. We had no harm to residents or associates
and relatively little property damage. We did incur about $350,000 of
increased operating expenses and lost revenue related to Hurricane
Rita in our Texas communities in September. For both hurricanes, our
teams performed with distinction - they put the residents' safety and
care above all else. We are proud of their dedication, resourcefulness
and self-sacrifice."
(All references to growth rate percentage compare the results of
the current period to the prior year comparable period.)
Financial Highlights
-- $125 million of total revenue for the third quarter of 2005,
an 11% increase.
-- Net income of $4 million ($.13 per diluted share) versus a
loss of $7 million.
-- Community operating contribution from the Company's three
business segments of $41 million, an increase of 15%.
-- Operating income of $9 million, a 202% increase.
Operational Highlights
-- Occupancy was 94%, with the company's large retirement
communities ending the quarter at 95% and the free-standing
assisted living communities ending at 91%.
-- Retirement Centers produced an 8% increase in average monthly
revenue per occupied unit, and a 10% increase in operating
contribution per occupied unit.
-- Free-standing assisted living communities produced a 10%
increase in average monthly revenue per occupied unit, and a
21% increase in operating contribution per occupied unit.
Operating Review
The company operates in three business segments:
-- The Retirement Centers ("Retirement Centers") include CCRCs
(continuing care retirement centers), Entrance-Fee Communities
("EF Communities") and congregate living residences.
-- Free-standing assisted living communities ("Free-standing
AL's") are smaller than Retirement Centers and provide
assisted living and specialized care such as Alzheimer's and
memory enhancement programs.
-- The Management Services segment includes fees from management
agreements for communities owned by others, development fees
and reimbursed expenses.
The results for the Company's three operating segments for the
third quarter of 2005 were as follows:
Three months ended
($ in 000's) Sept. 30,
- ------------------------------------- ------------------- $ %
2005 2004 Change Change
- ----------------------------------------------------------------------
Resident & Healthcare revenue $123,439 $111,089 12,350 11%
- ----------------------------------------------------------------------
Community operating expense $ 82,956 $ 75,825 7,131 9%
- ----------------------------------------------------------------------
Community operating contribution(1) $ 40,483 $ 35,264 5,219 15%
- ----------------------------------------------------------------------
Community operating margin 32.8% 31.7%
- ----------------------------------------------------------------------
Management Services op. contribution $ 664 $ 500 164 33%
- ----------------------------------------------------------------------
(1) The company evaluates the performance of its business
segments, primarily, based upon their operating contributions,
which the company defines as revenue from the segment less
operating expenses associated with that segment.
Retirement Centers Segment
The company's 29 Retirement Centers exhibited strong increases in
revenue and operating contribution for the third quarter of 2005 as
follows:
Retirement Centers ($ in 000's): Three Months
- -------------------------------------- Ended:
Sept. 30,
- ------------------------------------------------------- $ %
2005 2004 Change Change
- ----------------------------------------------------------------------
Revenues $95,244 $86,526 $8,718 10%
- ----------------------------------------------------------------------
Community Operating Contribution $31,762 $28,358 $3,404 12%
- ----------------------------------------------------------------------
Operating contribution margin 33.3% 32.8%
- ----------------------------------------------------------------------
% Ending Occupancy 95% 95%
- ----------------------------------------------------------------------
The Retirement Center segment continued to produce strong revenue
gains.
-- Ending occupancy was 95%, level with the third quarter of
2004, though the number of occupied units increased 2% due to
the acquisition of Galleria Woods in the first quarter.
-- The Retirement Centers ended the quarter with 97% occupancy in
independent living, 95% in assisted living and 88% in skilled
nursing.
-- Average monthly revenue per occupied unit increased 8% during
the quarter versus the prior year to $3,695 - due to increases
in monthly service fees and per diem rates in skilled nursing,
turnover of residents (the "Mark to Market" effect of
reselling or reletting units at higher current rates) and
increased ancillary services, primarily driven by the
company's Innovative Senior Care therapy, education and
wellness programs.
The operating contribution for Retirement Centers was $32 million
for the third quarter of 2005, and $94 million for the nine months
ended September 30, 2005. This represented a $3 million or 12%
increase over the prior year's third quarter and an $8 million (10%)
increase over the first nine months of 2004. The Retirement Centers
continue to increase the monthly operating contribution per occupied
unit, attaining $1,232 per unit in the third quarter of 2005, a 10%
improvement from the prior year's third quarter.
Free-standing AL's Segment
The company's 32 Free-standing AL's exhibited strong increases in
revenue and operating contribution for the third quarter of 2005 as
follows:
Free-standing AL's ($ in 000's) (1): Three Months
- --------------------------------------- Ended:
Sept. 30,
- --------------------------------------------------------- $ %
2005 2004 Change Change
- ----------------------------------------------------------------------
Revenues $28,195 $24,563 3,632 15%
- ----------------------------------------------------------------------
Community Operating Contribution $ 8,721 $ 6,906 1,815 26%
- ----------------------------------------------------------------------
Operating contribution margin 30.9% 28.1%
- ----------------------------------------------------------------------
% Ending Occupancy 91% 88%
- ----------------------------------------------------------------------
(1) Includes results of 32 Free-standing AL's and excludes a
non-consolidated Free-standing AL held in a joint venture.
The revenue increase in the Free-standing AL segment of 15% to $28
million was driven by the following factors:
-- Average occupancy for the Free-standing AL portfolio was 90%
for the third quarter, up from 87% a year ago and up from 89%
in the second quarter of 2005.
-- The average monthly revenue per occupied unit increased 10% to
$3,626, up from $3,304 per month in September 2004. The
revenue per occupied unit increase was due to rate increases,
reduced promotional allowances, increased care services and
turnover of residents (the "Mark to Market" effect of
reletting units at higher current rates).
-- The increased use of ancillary services, particularly
Innovative Senior Care therapy, education and wellness
services, also contributed significantly to the revenue
increase for this segment.
The operating contribution for Free-standing AL's was almost $9
million for the third quarter of 2005 and $25 million for the first
nine months of 2005. This represented a $2 million or 26% increase
over the prior year's third quarter and a $7 million (37%) increase
over the first nine months of 2004. The Free-standing AL's continue to
increase the monthly operating contribution per occupied unit, hitting
$1,122 per unit in the third quarter of 2005, a 21% improvement from
the prior year's third quarter. For the nine months year-to-date, 65%
of the incremental revenue from the Free-standing AL segment fell to
operating contribution.
Management Services Segment
The company's Management Services business segment includes
management contracts on six Retirement Centers and one Free-standing
AL, with an aggregate capacity of 1,539 units. The Management Services
segment had an operating contribution of $.7 million in the third
quarter of 2005, a 33% increase from the same prior-year period. This
resulted from improved performance at the managed communities. Also,
at the end of the quarter, the Company took over the management of a
third-party owned community, Bradford Village in Oklahoma, which we
expect to contribute in future quarters.
Financial Review
Revenues for the quarter increased 11% to $125 million versus the
prior year quarter and 10% to $365 million for the full nine months,
reflecting the increased average occupied units, the incremental rate
increase from new residents, rate increases to existing residents and
increased ancillary services. Ancillary services revenue was over $20
million for the quarter, up from $17 million a year ago. Ancillary
services revenue currently comprises 17% of total revenue.
Community operating expenses increased 9% for the quarter versus
the prior year period, while revenue increased 11%, evidencing good
cost control and the low incremental cost of additional occupancy.
General and administrative expenses increased 2% from the third
quarter of 2004 (excluding transaction costs in 2004), reflecting the
growth of the Company's business.
Net income for the third quarter of 2005 was $4 million or $.13
per diluted share, compared with a loss of $7 million for the prior
year's third quarter. Year-to-date net income was $66 million, which
included the second quarter benefit of $56 million due to certain past
tax benefits, and a $794,000 cost related to the second quarter
payment of a debt.
Free cash flow was $5 million for the third quarter, versus $2
million for the third quarter of 2004. For the nine months ended
September 30, free cash flow was $14 million versus $7 million for the
same prior year period. The primary drivers of the increased cash flow
were increased operating income and entrance fee sale proceeds, net of
refunds.
2005 Earnings Outlook
The company expects to report net earnings per diluted share of
$0.48 to $0.50 for 2005, excluding the $1.69 per share effect of the
tax benefit and debt repayment costs reported in the second quarter.
Conference Call Information
American Retirement Corporation will hold a conference call with
Bill Sheriff, Chairman, President and Chief Executive Officer, and
Bryan Richardson, Chief Financial Officer, to discuss the company's
2005 third-quarter financial results and the other matters described
above. The call will be held on Thursday, November 3, 2005 at 11:00
a.m. ET and parties may participate by either calling (877) 252-6354
or through the company's website at www.arclp.com. Click on the
broadcast icon to listen to the earnings call - Windows Media
Player(TM) is required to listen to this webcast. In addition, the
call will be archived on the company's website until the next
regularly scheduled earnings conference call. If any material
information is disclosed on the conference call that has not been
previously disclosed publicly, that information will also be available
at the Investors Welcome portion of the company's website.
Additional Filings
The company will file on or about November 3, 2005 a Form 8-K with
the SEC which includes supplemental information relating to the
company's third quarter 2005 results. This filing will also be
available through the Investors Welcome section of the company's
website - www.arclp.com.
Company Profile
American Retirement Corporation is a national senior living and
health care services provider offering a broad range of care and
services to seniors, including independent living, assisted living,
skilled nursing and Alzheimer's care. Established in 1978, the company
believes that it is a leader in the operation and management of senior
living communities, including independent living communities,
continuing care retirement communities, Free-standing AL's, and the
development of specialized care programs for residents with
Alzheimer's and other forms of dementia. The company's operating
philosophy is to enhance the lives of seniors by striving to provide
the highest quality of care and services in well-operated communities
designed to improve and protect the quality of life, independence,
personal freedom, privacy, spirit, and dignity of its residents. The
Company currently operates 76 senior living communities in 19 states,
with an aggregate unit capacity of approximately 14,300 units and
resident capacity of approximately 16,000. The Company owns 27
communities (including nine communities in joint ventures), leases 43
communities, and manages six communities pursuant to management
agreements. Approximately 83% of the company's revenues come from
private pay sources.
Risks of Forward Looking Statements
Statements contained in this press release and statements made by
or on behalf of American Retirement Corporation relating hereto may be
deemed to constitute forward-looking statements made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act
of 1995. Those forward-looking statements include all statements that
are not historical statements of fact and those regarding the intent,
belief or expectations of the company or its management, including,
without limitation, all statements regarding the company's future
operating and financial expectations, all statements regarding the
financial effects of the Epoch acquisition and Bradford Village
management agreement, and all statements regarding planned expansions
and development. These forward-looking statements may be affected by
certain risks and uncertainties, including without limitation the
following: (i) the risk associated with the company's significant debt
and lease obligations, (ii) the company's ability to sell its entrance
fee units and to increase occupancy at the company's communities
(especially its Free-standing AL's), (iii) the risk that the company
will be unable to improve the company's results of operations,
increase cash flow and reduce expenses, (iv) the risks associated with
adverse market conditions of the senior housing industry and the
United States economy in general, (v) the risk that the company is
unable to obtain liability insurance in the future or that the costs
thereof (including deductibles) will be prohibitive, (vi) the
company's ability to obtain new financing or extend and/or modify
existing debt, (vii) the risk that the company will not be able to
successfully integrate the Epoch and Bradford Village communities into
the company's operations, (viii) the risk of changes in government
reimbursement programs including caps on therapy reimbursements, and
(ix) the risk factors described in the company's Annual Report on Form
10-K/A for the year ended December 31, 2004 under the caption "Risk
Factors" and in the company's other filings with the SEC. In light of
the significant uncertainties inherent in the forward-looking
statements included herein, the company's actual results could differ
materially from such forward-looking statements. The company does not
undertake any obligation to publicly release any revisions to any
forward-looking statements contained herein to reflect events and
circumstances occurring after the date hereof or to reflect the
occurrence of unanticipated events.
AMERICAN RETIREMENT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(in thousands, except per share data)
Three months ended Increase
September 30, (Decrease)
------------------- ----------------
2005 2004 $ %
-------- -------- ------- -------
Revenues:
Resident and health care $123,439 $111,089 $12,350 11.1%
Management services 664 500 164 32.8%
Reimbursed expenses 646 460 186 40.4%
-------- -------- ------- -------
Total revenues 124,749 112,049 12,700 11.3%
Operating expenses:
Community operating expenses 82,956 75,825 7,131 9.4%
General and administrative 7,360 8,400 (1,040) -12.4%
Lease expense 15,014 15,100 (86) -0.6%
Depreciation and amortization 9,019 8,488 531 6.3%
Amortization of leasehold
acquisition costs 588 735 (147) -20.0%
Loss on sale of assets 121 48 73 152.1%
Reimbursed expenses 646 460 186 40.4%
-------- -------- ------- -------
Total operating expenses 115,704 109,056 6,648 6.1%
-------- -------- ------- -------
Operating income 9,045 2,993 6,052 202.2%
Other income (expense):
Interest expense (4,228) (8,400) 4,172 49.7%
Interest income 1,567 718 849 118.2%
Other 340 257 83 32.3%
-------- -------- ------- -------
Other expense, net (2,321) (7,425) 5,104 68.7%
-------- -------- ------- -------
Income (loss) before income
taxes and minority interest 6,724 (4,432) 11,156 251.7%
Income tax expense 2,151 2,501 (350) -14.0%
-------- -------- ------- -------
Income (loss) from continuing
operations before minority
interest 4,573 (6,933) 11,506 166.0%
Minority interest in (earnings)
losses of consolidated
subsidiaries, net of tax (483) 270 (753) -278.9%
-------- -------- ------- -------
Net income (loss) $ 4,090 $ (6,663) $10,753 161.4%
======== ======== ======= =======
Basic income (loss) per share $ 0.13 $ (0.27)
======== ========
Diluted income (loss) per share $ 0.13 $ (0.27)
======== ========
Weighted average shares used for
basic earnings (loss) per share
data 30,918 24,665
Effect of dilutive common stock
options 1,595 -
-------- --------
Weighted average shares used for
diluted earnings (loss) per share
data 32,513 24,665
======== ========
- ----------------------------------------------------
September December
30, 31,
2005 2004
-------- --------
Selected Balance Sheet Data:
Cash and cash equivalents $ 33,952 $ 28,454
Restricted cash 30,022 50,134
Working capital deficit (95,832) (98,995)
Land, buildings and equipment,
net 552,242 496,297
Total assets 858,353 749,250
Long-term debt, including
current portion 135,671 135,956
Capital lease and lease
financing obligations,
including current portion 187,090 199,126
Refundable portion of entrance
fees 83,676 79,148
Current portion of deferred
entrance fee income 35,848 33,800
Long-term deferred entrance
fee income 122,222 111,386
Deferred gain on sale lease-
back transactions 90,009 98,876
Shareholders' equity 124,796 5,701
AMERICAN RETIREMENT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(in thousands, except per share data)
Nine months ended Increase
September 30, (Decrease)
------------------- -----------------
2005 2004 $ %
-------- -------- -----------------
Revenues:
Resident and health care $361,769 $328,150 $ 33,619 10.2%
Management services 1,680 1,439 241 16.7%
Reimbursed expenses 1,990 1,752 238 13.6%
-------- -------- -----------------
Total revenues 365,439 331,341 34,098 10.3%
Operating expenses:
Community operating expenses 242,189 223,742 18,447 8.2%
General and administrative 20,716 21,102 (386) -1.8%
Lease expense 45,969 44,793 1,176 2.6%
Depreciation and amortization 27,063 21,948 5,115 23.3%
Amortization of leasehold
acquisition costs 1,976 2,181 (205) -9.4%
Loss (gain) on sale of assets 477 (63) 540 857.1%
Reimbursed expenses 1,990 1,752 238 13.6%
-------- -------- -----------------
Total operating expenses 340,380 315,455 24,925 7.9%
-------- -------- -----------------
Operating income 25,059 15,886 9,173 57.7%
Other income (expense):
Interest expense (11,701) (27,033) 15,332 56.7%
Interest income 3,161 1,989 1,172 58.9%
Other 484 4 480 -12000.0%
-------- -------- -----------------
Other expense, net (8,056) (25,040) 16,984 67.8%
-------- -------- -----------------
Income (loss) before income
taxes and minority
interest 17,003 (9,154) 26,157 285.7%
Income tax (benefit) expense (49,866) 2,721 52,587 1932.6%
-------- -------- -----------------
Income (loss) from
continuing operations
before minority interest 66,869 (11,875) 78,744 663.1%
Minority interest in earnings
of consolidated subsidiaries,
net of tax (1,154) (1,555) 401 25.8%
-------- -------- -----------------
Net income (loss) $ 65,715 $(13,430) $ 79,145 589.3%
======== ======== =================
Basic income (loss) per share $ 2.18 $ (0.57)
======== ========
Diluted income (loss) per
share $ 2.06 $ (0.57)
======== ========
Weighted average shares used
for basic earnings (loss) per
share data 30,147 23,404
Effect of dilutive common stock
options 1,701 -
-------- --------
Weighted average shares used
for dilutive earnings (loss)
per share data 31,848 23,404
======== ========
AMERICAN RETIREMENT CORPORATION AND SUBSIDIARIES
GAAP RECONCILIATION
FREE CASH FLOW
($'s in thousands)
Free cash flow is presented to provide additional information
concerning cash flow available to meet future debt service
obligations and working capital requirements. Free cash flow should
not be considered as a measure of financial performance or liquidity
under U.S. generally accepted accounting principles. Free cash flow
should not be considered in isolation or as alternative to financial
statement data presented in the Company's consolidated financial
statements as an indicator of financial performance or liquidity.
Free cash flow, as presented, may not be comparable to similarly
titled measures of other companies.
The following table reconciles Free cash flow, as described above, to
net income (loss) as reflected in the Company's consolidated
statements of earnings.
Three Six months Nine
months ended months
ended ended
March 31, June 30, Sept. 30,
2005 2005 2005
Net income $ 2,625 $ 61,625 $ 65,715
Adjustments to reconcile net income
to cash and cash equivalents
provided by operating activities:
Tax benefit from release of tax
valuation allowance - (55,697) (55,697)
Depreciation and amortization 10,066 19,685 29,572
Loss on extinguishment of debt - 794 794
Amortization of deferred entrance
fee revenue (4,064) (8,894) (13,418)
Proceeds from entrance fee sales,
net of refunds 7,805 18,211 26,463
Deferred income tax benefit (765) - -
Amortization of deferred gain on
sale-leaseback transactions (2,956) (5,911) (8,867)
Amortization of deferred
compensation 218 412 695
Minority interest in earnings of
consolidated subsidiaries 71 671 1,154
Tax benefit from exercise of
stock options 395 558 847
(Gains) losses from
unconsolidated joint ventures (66) (160) (260)
Loss (gain) on sale of assets 12 356 477
--------- --------- ---------
Net cash and cash equivalents
provided by operating
activities (before
changes in assets and liabilities,
exclusive of acquisitions
and sale leaseback transactions) 13,341 31,650 47,475
Proceeds from refundable entrance
fee sales, net of refunds (1,521) (2,737) (4,611)
Adjustments for lease escalators
and other accruals 1,004 2,220 3,502
Additions to land, building and
equipment (19,629) (27,533) (44,303)
Plus: Development expenditures
(funded separately) 693 2,266 5,929
Distributions to minority
interest holders (984) (2,378) (3,222)
Principal reductions in master
trust liability (285) (553) (817)
Other adjustments for
transactions / refinancings 15,015 15,764 24,319
--------- --------- ---------
Free cash flow 7,634 18,699 28,272
Principal payments on long-term
debt (4,897) (9,869) (14,527)
--------- --------- ---------
Free cash flow after principal
payments $ 2,737 $ 8,830 $ 13,745
========= ========= =========
Quarter Ended
--------------------------------
March 31, June 30, Sept. 30,
2005 2005 2005
Net income $ 2,625 $ 59,000 4,090
Adjustments to reconcile net income
to cash and cash equivalents
provided by operating activities:
Tax benefit from release of tax
valuation allowance - (55,697) -
Depreciation and amortization 10,066 9,619 9,887
Loss on extinguishment of debt - 794 -
Amortization of deferred entrance
fee revenue (4,064) (4,830) (4,524)
Proceeds from entrance fee sales,
net of refunds 7,805 10,406 8,252
Deferred income tax benefit (765) 765 -
Amortization of deferred gain on
sale-leaseback transactions (2,956) (2,955) (2,956)
Amortization of deferred
compensation 218 194 283
Minority interest in earnings of
consolidated subsidiaries 71 600 483
Tax benefit from exercise of
stock options 395 163 289
(Gains) losses from
unconsolidated joint ventures (66) (94) (100)
Loss (gain) on sale of assets 12 344 121
--------- --------- ---------
Net cash and cash equivalents
provided by operating activities
(before changes in assets and
liabilities, exclusive of
acquisitions and sale leaseback
transactions) 13,341 18,309 15,825
Proceeds from refundable entrance
fee sales, net of refunds (1,521) (1,216) (1,874)
Adjustments for lease escalators
and other accruals 1,004 1,216 1,282
Additions to land, building and
equipment (19,629) (7,904) (16,770)
Plus: Development expenditures
(funded separately) 693 1,573 3,663
Distributions to minority
interest holders (984) (1,394) (844)
Principal reductions in master
trust liability (285) (268) (264)
Other adjustments for
transactions / refinancings 15,015 749 8,555
--------- --------- ---------
Free cash flow 7,634 11,065 9,573
Principal payments on long-term
debt (4,897) (4,972) (4,658)
--------- --------- ---------
Free cash flow after principal
payments $ 2,737 $ 6,093 $ 4,915
========= ========= =========
CONTACT: American Retirement Corporation
Ross C. Roadman, 615-376-2412