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Emeritus Announces Operating Results For Second Quarter 2012

The conference call will be webcast live over the internet from the Company’s web site at www.emeritus.com under the “Investors” section. The conference call can also be accessed by dialing (877) 705-6003, or for international participants (201) 493-6725. A replay of the conference call will be available after 8:00 P.M. Eastern Time on Thursday, August 2, 2012, until midnight Eastern Time on Thursday, August 9, 2012. The dial-in numbers for the replay are (877) 870-5176 or, for international participants, (858) 384-5517. To access the telephonic replay, enter the conference ID 397336.

Non-GAAP Financial Measures

Adjusted EBITDA/EBITDAR and CFFO are financial measures of operating performance that are not calculated in accordance with U.S. generally accepted accounting principles (GAAP). The Company believes that these non-GAAP measures are useful in identifying trends in day-to-day performance because they exclude items that are of little or no significance to operations and provide indicators to management of progress in achieving optimal operating performance. In addition, these measures are used by many research analysts and investors to evaluate the performance and the value of companies in the senior living industry. The Company strongly urges you to review the reconciliation of net income (loss) to Adjusted EBITDA/EBITDAR and the reconciliation of net cash provided by operating activities to CFFO, provided below, along with the Company’s consolidated balance sheets, statements of operations, and statements of cash flows. The Company defines Adjusted EBITDA/EBITDAR and CFFO and provides other information about these non-GAAP measures in the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2012, to be filed with the Securities and Exchange Commission.

The table below shows the reconciliation of net income (loss) to Adjusted EBITDA/EBITDAR for the three and six months ended June 30, 2012 and 2011 (in thousands):
     
Three Months Ended Six Months Ended
June 30, June 30,
2012     2011 2012     2011
Net income (loss) $ (21,753 ) $ 22,096 $ (41,148 ) $ (582 )
Depreciation and amortization 32,993 29,438 65,563 57,525
Interest income (98 ) (123 ) (202 ) (234 )
Interest expense 38,587 37,975 77,632 74,239
Net equity losses for unconsolidated joint ventures 80 61 472 435
Provision for income taxes 324 294 596 575
Loss from discontinued operations 5,007 397 5,007 397
Amortization of above/below market rents 1,624 1,966 3,378 3,933
Amortization of deferred gains (264 ) (284 ) (533 ) (572 )
Stock-based compensation 2,834 2,366 5,679 4,709
Change in fair value of derivative financial instruments 534 (509 ) 745 (509 )
Deferred revenue (151 ) 654 (450 ) 1,140
Deferred straight-line rent 1,096 2,440 2,298 4,932
Contract buyout costs 6,256
Impairment of long-lived assets 2,135
Gain on sale of investments (1,569 )
Acquisition gain (42,110 ) (42,110 )
Acquisition, development, and financing expenses 1,112 1,957 1,433 2,470
Self-insurance reserve adjustments   1,849     3,141     2,246     3,173  
Adjusted EBITDA 63,774 59,759 124,851 114,208
Community lease expense, net   28,296     26,796     56,511     53,333  
Adjusted EBITDAR $ 92,070   $ 86,555   $ 181,362   $ 167,541  
 

The following table shows the reconciliation of net cash provided by operating activities to CFFO and CFFO as adjusted for self-insurance reserves relating to prior years (in thousands):
      Three Months Ended     Six Months Ended
June 30, June 30,
2012     2011 2012     2011
Net cash provided by operating activities $ 42,324 $ 17,736 $ 68,516 $ 17,470
Changes in operating assets and liabilities, net (16,009 ) 4,025 (17,273 ) 19,793
Contract buyout costs 6,256
Repayment of capital lease and financing obligations (4,183 ) (3,503 ) (8,077 ) (6,898 )
Recurring capital expenditures (3,718 ) (4,310 ) (8,173 ) (8,632 )
Distributions from unconsolidated joint ventures, net   61     801     87     1,351  
Cash From Facility Operations 18,475 14,749 35,080 29,340
Self-insurance reserve adjustments, prior years   1,849     3,141     2,246     3,173  
Cash From Facility Operations, as adjusted $ 20,324   $ 17,890   $ 37,326   $ 32,513  
 
CFFO per share $ 0.41 $ 0.33 $ 0.79 $ 0.66
CFFO per share, as adjusted $ 0.46 $ 0.40 $ 0.84 $ 0.73
 

The Company defines recurring capital expenditures as actual costs incurred to maintain our communities for their intended business purpose and exclude expenditures for acquisitions, development, expansions and general corporate purposes.

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