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Emeritus Announces Operating Results For Second Quarter 2012

For a more detailed understanding of Emeritus, please refer to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2012, to be filed with the SEC, or visit the Company’s web site at www.emeritus.com to obtain copies.

About Emeritus Corporation

Emeritus Corporation is the nation’s largest assisted living and memory care provider with capacity to serve approximately 49,600 residents. More than 28,000 employees serve residents at 477 communities throughout 44 states coast to coast. Emeritus offers the spectrum of senior residential choices, care options and life enrichment programs that fulfill individual needs and promote purposeful living throughout the aging process. Its experts provide insights on senior living, care, wellness, brain health, caregiving and family topics at www.emeritus.com, which also offers details on the organization’s services. Emeritus’ common stock is traded on the New York Stock Exchange under the symbol ESC.

“Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995: A number of the matters and subject areas discussed in this report that are not historical or current facts deal with potential future circumstances, operations, and prospects. The discussion of such matters and subject areas is qualified by the inherent risks and uncertainties surrounding future expectations generally, and also may materially differ from our actual future experience as a result of such factors as: the effects of competition and economic conditions on the occupancy levels in our communities; our ability under current market conditions to maintain and increase our resident charges in accordance with our rate enhancement programs without adversely affecting occupancy levels; increases in interest costs as a result of refinancings; our ability to control community operation expenses without adversely affecting the level of occupancy and the level of resident charges; our ability to generate cash flow sufficient to service our debt and other fixed payment requirements; our ability to find sources of financing and capital on satisfactory terms to meet our cash requirements to the extent that they are not met by operations, and uncertainties related to professional liability and workers’ compensation claims. We have attempted to identify, in context, certain of the factors that we currently believe may cause actual future experience and results to differ from our current expectations regarding the relevant matter or subject area. These and other risks and uncertainties are detailed in our reports filed with the Securities and Exchange Commission, including “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2011 filed with the SEC. The Company undertakes no obligation to update the information provided herein.

 

EMERITUS CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited)

(In thousands, except per share data)

 
 
ASSETS
     
June 30, December 31,
2012 2011
Current Assets:
Cash and cash equivalents $ 74,792 $ 43,670
Short-term investments 4,322 3,585
Trade accounts receivable, net of allowance of $3,620 and $2,294 24,429 26,195
Other receivables 16,226 16,117
Tax, insurance, and maintenance escrows 21,423 20,501
Prepaid insurance expense 35,867 36,020
Deferred tax asset 22,072 19,934
Other prepaid expenses and current assets 6,213 8,140
Property held for sale   7,857      
Total current assets 213,201 174,162
Investments in unconsolidated joint ventures 15,679 15,428
Property and equipment, net of accumulated depreciation of $465,592 and $407,952 2,301,824 2,355,425
Restricted deposits 18,166 16,427
Goodwill 118,590 118,725
Other intangible assets, net of accumulated amortization of $57,420 and $48,722 91,761 100,873
Other assets, net   26,801     29,288  
Total assets $ 2,786,022   $ 2,810,328  
 
LIABILITIES, SHAREHOLDERS' EQUITY AND NONCONTROLLING INTEREST
 
Current Liabilities:
Current portion of long-term debt $ 63,689 $ 74,175
Current portion of capital lease and financing obligations 21,471 17,004
Trade accounts payable 19,091 7,959
Accrued employee compensation and benefits 71,777 70,936
Accrued interest 8,120 9,061
Accrued real estate taxes 11,872 11,791
Accrued professional and general liability 32,091 24,525
Other accrued expenses 21,095 19,477
Deferred revenue 15,402 16,348
Unearned rental income   21,639     22,965  
Total current liabilities 286,247 274,241
Long-term debt obligations, less current portion 1,521,920 1,528,710
Capital lease and financing obligations, less current portion 621,398 619,088
Deferred gain on sale of communities 4,256 4,789
Deferred straight-line rent 62,449 61,481
Other long-term liabilities   41,843     39,283  
Total liabilities   2,538,113     2,527,592  
Commitments and contingencies
Shareholders' Equity and Noncontrolling Interest:
Preferred stock, $0.0001 par value. Authorized 20,000,000 shares, none issued
Common stock, $0.0001 par value. Authorized 100,000,000 shares, issued and
outstanding 45,061,359 and 44,989,861 shares 4 4
Additional paid-in capital 828,666 822,345
Accumulated deficit   (584,349 )   (543,249 )
Total Emeritus Corporation shareholders' equity 244,321 279,100
Noncontrolling interest-related party   3,588     3,636  
Total shareholders' equity   247,909     282,736  
Total liabilities, shareholders' equity, and noncontrolling interest $ 2,786,022   $ 2,810,328  
 

       

EMERITUS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

(In thousands, except per share data)

 
Three Months Ended Six Months Ended
June 30, June 30,
2012     2011 2012     2011
Revenues:
Community revenue $ 318,628 $ 301,722 $ 636,551 $ 596,442
Management fees   5,141     5,485     10,197     10,946  
Community and management fee revenue 323,769 307,207 646,748 607,388
Reimbursed costs incurred on behalf of managed communities   51,033     56,480     102,645     114,604  
Total operating revenues   374,802     363,687     749,393     721,992  
 
Expenses:
Community operations 213,571 205,358 427,044 404,389
General and administrative 22,987 21,721 46,410 44,934
Transaction costs 882 1,844 1,188 8,593
Impairments of long-lived assets 2,135
Depreciation and amortization 32,993 29,438 65,563 57,525
Community leases 31,016 31,202 62,187 62,198
Costs incurred on behalf of managed communities   51,033     56,480     102,645     114,604  
Total operating expenses   352,482     346,043     707,172     692,243  
Operating income from continuing operations   22,320     17,644     42,221     29,749  
 
Other income (expense):
Interest income 98 123 202 234
Interest expense (38,587 ) (37,975 ) (77,632 ) (74,239 )
Change in fair value of derivative financial instruments (534 ) 509 (745 ) 509
Net equity losses for unconsolidated joint ventures (80 ) (61 ) (472 ) (435 )
Acquisition gain 42,110 42,110
Other, net   361     437     881     2,462  
Net other income (expense)   (38,742 )   5,143     (77,766 )   (29,359 )
 
Income (loss) from continuing operations before income taxes (16,422 ) 22,787 (35,545 ) 390
Provision for income taxes   (324 )   (294 )   (596 )   (575 )
Income (loss) from continuing operations (16,746 ) 22,493 (36,141 ) (185 )
Loss from discontinued operations   (5,007 )   (397 )   (5,007 )   (397 )
Net income (loss) (21,753 ) 22,096 (41,148 ) (582 )
Net loss attributable to the noncontrolling interests   34     101     48     218  
Net income (loss) attributable to Emeritus Corporation
common shareholders $ (21,719 ) $ 22,197   $ (41,100 ) $ (364 )
 
Basic income (loss) per common share attributable to
Emeritus Corporation common shareholders:
Continuing operations $ (0.38 ) $ 0.51 $ (0.81 ) $
Discontinued operations   (0.11 )   (0.01 )   (0.11 )   (0.01 )
$ (0.49 ) $ 0.50   $ (0.92 ) $ (0.01 )
 
Weighted average common shares outstanding   44,612     44,283     44,597     44,247  
 
Diluted income (loss) per common share attributable to
Emeritus Corporation common shareholders:
Continuing operations $ (0.38 ) $ 0.50 $ (0.81 ) $
Discontinued operations   (0.11 )   (0.01 )   (0.11 )   (0.01 )
$ (0.49 ) $ 0.49   $ (0.92 ) $ (0.01 )
 
Weighted average diluted common shares outstanding   44,612     44,874     44,597     44,247  
 

   

EMERITUS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(In thousands)

 
Six Months Ended June 30,
2012     2011
Cash flows from operating activities:
Net loss $ (41,148 ) $ (582 )
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Depreciation and amortization 65,563 57,525
Amortization of above/below market rents 3,378 3,933
Amortization of deferred gains (533 ) (572 )
Acquisition gain (42,110 )
Loss on early extinguishment of debt 625
Impairments of long-lived assets 6,678
Gain on sale of investments (1,569 )
Gain (loss) on sale of assets (205 ) 384
Amortization of loan fees 1,680 1,474
Allowance for doubtful receivables 5,225 4,507
Equity investment losses 473 435
Stock-based compensation 5,679 4,709
Change in fair value of derivative financial instruments 745 (509 )
Deferred straight-line rent 2,298 4,932
Deferred revenue (450 ) 1,140
Other 1,235 3,566
Change in other operating assets and liabilities   17,273     (19,793 )
Net cash provided by operating activities   68,516     17,470  
 
Cash flows from investing activities:
Acquisition of property and equipment (11,399 ) (14,390 )
Community acquisitions, net of cash acquired (139,568 )
Proceeds from the sale of assets 3,725 10,557
Other assets (179 ) (304 )
Advances from (to) affiliates and other managed communities, net 481 (450 )
Distributions from (contributions to) unconsolidated joint ventures, net   (637 )   1,351  
Net cash used in investing activities   (8,009 )   (142,804 )
 
Cash flows from financing activities:
Sale of stock, net 623 1,281
Distribution to noncontrolling interest (4,078 )
Increase in restricted deposits (1,655 ) (2,342 )
Debt issuance and other financing costs (1,118 ) (3,510 )
Proceeds from long-term borrowings and financings 10,553 108,316
Repayment of long-term borrowings and financings (29,711 ) (40,880 )
Repayment of capital lease and financing obligations   (8,077 )   (6,898 )
Net cash provided by (used in) financing activities   (29,385 )   51,889  
 
Net increase (decrease) in cash and cash equivalents 31,122 (73,445 )
Cash and cash equivalents at the beginning of the period   43,670     110,124  
Cash and cash equivalents at the end of the period $ 74,792   $ 36,679  
 

       

Emeritus Corporation

Cash Lease and Interest Expense

Three Months Ended June 30, 2012

 
Projected
Actual Range
Q2-12 Q3-2012
Facility lease expense - GAAP $ 31,016 $31,000 - $31,300
Less:
Straight-line rents (1,096)   (900) - (1,100)
Above/below market rents (1,624) (1,600) - (1,700)
Plus:
Capital lease interest 12,986 12,900 -13,200
Capital lease principal   3,943   5,000 - 5,300
Facility lease expense - CASH $ 45,225 $46,400 - $47,000
 
 
Interest expense - GAAP $ 38,587 $38,500 - $38,900
Less:
Capital lease interest (12,986) (12,900) - (13,100)
Loan fee amortization and other   (845)   (800) - (900)
Interest expense - CASH $ 24,756 $24,800 - $24,900
 
 
Depreciation - owned assets $ 19,011 $18,500 - 19,000
Depreciation - capital leases 11,300 11,200 - 11,400
Amortization - intangible assets   2,682   2,600 - 2,700
Total depreciation and amortization $ 32,993 $32,300 - 33,100
 

                   

EMERITUS CORPORATION

Consolidated Supplemental Financial Information

For the Quarters Ended

(unaudited)

(Dollars in thousands, except non-financial and per-unit data)

 

Non-Financial Data:

Q2 2011     Q3 2011     Q4 2011    

Q1 2012

   

Q2 2012

Average consolidated communities 316.0 333.3 332.8 328.0 327.0
Average available units 28,843 30,173 30,096 29,667 29,629
Average occupied units 24,793 26,095 26,059 25,694 25,603
Average occupancy 86.0 % 86.5 % 86.6 % 86.6 % 86.4 %
Average monthly revenue per occupied unit $ 4,057 $ 4,065 $ 4,080 $ 4,124 $ 4,148
Calendar days 91 92 92 91 91
 

Community revenues:

Community revenues $ 297,501 $ 313,711 $ 313,613 $ 312,724 $ 314,170
Move-in fees 5,135 5,456 5,751 5,816 5,816
Move-in incentives   (914 )       (930 )       (378 )       (617 )       (1,358 )
Total community revenues $ 301,722       $ 318,237       $ 318,986       $ 317,923       $ 318,628  
 

Community operating expenses:

Salaries and wages - regular and overtime $ 94,607 $ 100,223 $ 100,884 $ 98,277 $ 98,030
Average daily salary and wages $ 1,040 $ 1,089 $ 1,097 $ 1,080 $ 1,077
Average daily wages per occupied unit $ 41.93 $ 41.75 $ 42.08 $ 42.03 $ 42.08
 
Payroll taxes and employee benefits $ 31,588 $ 33,366 $ 32,347 $ 34,839 $ 33,203
Percent of salaries and wages 33.4 % 33.3 % 32.1 % 35.4 % 33.9 %
 
Prior year self-insurance reserve adjustments $ 3,141 $ 8,605 $ 4,133 $ 397 $ 1,849
 
Utilities $ 12,073 $ 15,351 $ 12,586 $ 13,532 $ 12,141
Average monthly cost per occupied unit $ 162 $ 196 $ 161 $ 176 $ 158
 
Facility maintenance and repairs $ 7,687 $ 8,498 $ 8,178 $ 7,877 $ 8,427
Average monthly cost per occupied unit $ 103 $ 109 $ 105 $ 102 $ 110
 
All other community operating expenses $ 56,262 $ 57,380 $ 61,227 $ 58,551 $ 59,921
Average monthly cost per occupied unit $ 756 $ 733 $ 783 $ 760 $ 780
                         
Total community operating expenses $ 205,358       $ 223,423       $ 219,355       $ 213,473       $ 213,571  
 
Community operating income $ 96,364 $ 94,814 $ 99,631 $ 104,450 $ 105,057
 
Operating income margin 31.9 % 29.8 % 31.2 % 32.9 % 33.0 %
 
                   

EMERITUS CORPORATION

Selected Consolidated and Same Community Information

For the Quarters Ended

(unaudited)

(Community revenue and operating expense in thousands)

 

 

Q2 2011     Q3 2011     Q4 2011     Q1 2012     Q2 2012

Consolidated:

Average consolidated communities 316.0 333.3 332.8 328.0 327.0
Community revenue $301,722 $318,237 $318,986 $317,923 $318,628
Community operating expense $205,358 $223,423 $219,355 $213,473 $213,571
Average occupancy 86.0% 86.5% 86.6% 86.6% 86.4%
Average monthly revenue per unit $ 4,057 $ 4,065 $ 4,080 $ 4,124 $ 4,148
Operating income margin 31.9% 29.8% 31.2% 32.9% 33.0%
 

Same Community:

Average consolidated communities 295.0 295.0 295.0 295.0 295.0
Community revenue $287,536 $288,909 $288,455 $289,030 $290,479
Community operating expense $191,208 $192,434 $192,853 $193,012 $191,838
Average occupancy 86.5% 86.9% 87.1% 86.8% 86.6%
Average monthly revenue per unit $ 4,101 $ 4,097 $ 4,083 $ 4,104 $ 4,136
Operating income margin 33.5% 33.4% 33.1% 33.2% 34.0%
 




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