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Emeritus Announces Operating Results For Third 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 September 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 nearly 50,000 residents. More than 28,000 employees support more than 470 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 satisfaction of the conditions to the closing of the transactions, including obtaining and maintaining required regulatory approvals; the occurrence of any event, change or other circumstances that could give rise to the termination of the purchase and sale agreement; 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 share data)

 
ASSETS
       
September 30, December 31,
2012 2011
Current Assets:
Cash and cash equivalents $ 97,353 $ 43,670
Short-term investments 4,668 3,585
Trade accounts receivable, net of allowance of $4,269 and $2,294 24,883 26,195
Other receivables 22,401 16,117
Tax, insurance, and maintenance escrows 25,321 20,501
Prepaid insurance expense 31,357 36,020
Deferred tax asset 20,708 19,934
Other prepaid expenses and current assets   7,467     8,140  
Total current assets 234,158 174,162
Investments in unconsolidated joint ventures 14,819 15,428
Property and equipment, net of accumulated depreciation of $494,221 and $407,952 2,278,095 2,355,425
Restricted deposits 18,619 16,427
Goodwill 118,232 118,725
Other intangible assets, net of accumulated amortization of $60,617 and $48,722 87,319 100,873
Other assets, net   25,765     29,288  
Total assets $ 2,777,007   $ 2,810,328  
 
LIABILITIES, SHAREHOLDERS' EQUITY AND NONCONTROLLING INTEREST
 
Current Liabilities:
Current portion of long-term debt $ 57,586 $ 74,175
Current portion of capital lease and financing obligations 23,348 17,004
Trade accounts payable 22,569 7,959
Accrued employee compensation and benefits 79,234 70,936
Accrued interest 8,046 9,061
Accrued real estate taxes 16,196 11,791
Accrued professional and general liability 41,323 24,525
Other accrued expenses 23,875 19,477
Deferred revenue 14,760 16,348
Unearned rental income   19,288     22,965  
Total current liabilities 306,225 274,241
Long-term debt obligations, less current portion 1,509,763 1,528,710
Capital lease and financing obligations, less current portion 617,743 619,088
Deferred gain on sale of communities 4,007 4,789
Deferred straight-line rent 63,361 61,481
Other long-term liabilities   40,787     39,283  
Total liabilities   2,541,886     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 45,137,207 and 44,989,861 shares 4 4
Additional paid-in capital 832,280 822,345
Accumulated deficit   (600,601 )   (543,249 )
Total Emeritus Corporation shareholders' equity 231,683 279,100
Noncontrolling interest-related party   3,438     3,636  
Total shareholders' equity   235,121     282,736  
Total liabilities, shareholders' equity, and noncontrolling interest $ 2,777,007   $ 2,810,328  
 
       

EMERITUS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

(In thousands, except per share data)

 
Three Months Ended Nine Months Ended
September 30, September 30,
2012     2011 2012     2011
Revenues:
Community revenue $ 323,874 $ 318,237 $ 960,425 $ 914,679
Management fees   5,293     5,000     15,490     15,946  
Community and management fee revenue 329,167 323,237 975,915 930,625

Reimbursed costs incurred on behalf of managed communities

  51,953     51,020     154,598     165,623  
Total operating revenues   381,120     374,257     1,130,513     1,096,248  
 
Expenses:
Community operations 216,943 223,423 643,987 627,812
General and administrative 23,082 21,671 69,492 66,605
Transaction costs 1,292 492 2,480 9,085
Impairments of long-lived assets 2,135
Depreciation and amortization 32,461 32,540 98,024 90,065
Community leases 30,960 31,014 93,147 93,212
Costs incurred on behalf of managed communities   51,953     51,020     154,598     165,623  
Total operating expenses   356,691     360,160     1,063,863     1,052,402  
Operating income from continuing operations   24,429     14,097     66,650     43,846  
 
Other income (expense):
Interest income 101 121 303 355
Interest expense (38,451 ) (41,605 ) (116,083 ) (115,844 )
Change in fair value of derivative financial instruments (174 ) 1,527 (919 ) 2,036
Net equity losses for unconsolidated joint ventures (28 ) (817 ) (500 ) (1,252 )
Acquisition gain 42,110
Other, net   743     312     1,624     2,774  
Net other expense   (37,809 )   (40,462 )   (115,575 )   (69,821 )
 
Loss from continuing operations before income taxes (13,380 ) (26,365 ) (48,925 ) (25,975 )
Provision for income taxes   (324 )   (82 )   (920 )   (657 )
Loss from continuing operations (13,704 ) (26,447 ) (49,845 ) (26,632 )
Loss from discontinued operations   (2,698 )   (17,258 )   (7,705 )   (17,655 )
Net loss (16,402 ) (43,705 ) (57,550 ) (44,287 )
Net loss attributable to the noncontrolling interests   150     97     198     315  
Net loss attributable to Emeritus Corporation
common shareholders $ (16,252 ) $ (43,608 ) $ (57,352 ) $ (43,972 )
 
Basic and diluted loss per common share attributable to
Emeritus Corporation common shareholders:
Continuing operations $ (0.30 ) $ (0.59 ) $ (1.12 ) $ (0.59 )
Discontinued operations   (0.06 )   (0.39 )   (0.17 )   (0.40 )
$ (0.36 ) $ (0.98 ) $ (1.29 ) $ (0.99 )
 
Weighted average common shares outstanding   44,642     44,316     44,612     44,270  
 
   

EMERITUS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(In thousands)

 
Nine Months Ended September 30,
2012     2011
Cash flows from operating activities:
Net loss $ (57,550 ) $ (44,287 )
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization 98,024 90,065
Amortization of above/below market rents 4,990 5,778
Amortization of deferred gains (782 ) (851 )
Acquisition gain (42,110 )
Loss on early extinguishment of debt 813
Impairments of long-lived assets 8,430 17,497
Gain on sale of investments (1,569 )
Net loss on sale of assets 527 119
Amortization of loan fees 2,465 2,280
Allowance for doubtful receivables 7,883 5,839
Equity investment losses 500 1,252
Stock-based compensation 8,319 6,882
Change in fair value of derivative financial instruments 919 (2,036 )
Deferred straight-line rent 3,221 7,129
Deferred revenue (755 ) 2,285
Other 1,877 5,248
Change in other operating assets and liabilities   31,740     10,232  
Net cash provided by operating activities   110,621     63,753  
 
Cash flows from investing activities:
Acquisition of property and equipment (21,621 ) (23,114 )
Community acquisitions, net of cash acquired (180,229 )
Proceeds from the sale of assets 15,565 16,339
Other assets (376 ) 213
Advances from (to) affiliates and other managed communities, net 814 (1,697 )
Distributions from unconsolidated joint ventures, net   173     2,680  
Net cash used in investing activities   (5,445 )   (185,808 )
 
Cash flows from financing activities:
Sale of stock, net 1,693 1,756
Distribution to noncontrolling interest (4,073 )
Increase in restricted deposits (2,066 ) (2,432 )
Debt issuance and other financing costs (1,252 ) (4,419 )
Proceeds from long-term borrowings and financings 17,703 168,300
Repayment of long-term borrowings and financings (55,121 ) (75,992 )
Repayment of capital lease and financing obligations   (12,450 )   (10,456 )
Net cash provided by (used in) financing activities   (51,493 )   72,684  
 
Net increase (decrease) in cash and cash equivalents 53,683 (49,371 )
Cash and cash equivalents at the beginning of the period   43,670     110,124  
Cash and cash equivalents at the end of the period $ 97,353   $ 60,753  
 
 
Emeritus Corporation
Cash Lease and Interest Expense
Three Months Ended September 30, 2012
(In thousands)
           
Projected
Actual Range
Q3-12 Q4-2012
Facility lease expense - GAAP $ 30,960 $ 30,900 $ 31,100
Less:
Straight-line rents (923 ) (800 ) (900 )
Above/below market rents (1,612 ) (1,600 ) (1,700 )
Plus:
Capital lease interest 12,870 34,500 35,000
Capital lease principal   3,679     4,000     5,000  
Facility lease expense - CASH $ 44,974   $ 67,000   $ 68,500  
 
 
Interest expense - GAAP $ 38,451 $ 59,000 $ 60,500
Less:
Capital lease interest (12,870 ) (34,500 ) (35,000 )
Loan fee amortization and other   (789 )   (700 )   (800 )
Interest expense - CASH $ 24,792   $ 23,800   $ 24,700  
 
 
Depreciation - owned assets $ 18,642 $ 17,700 $ 18,200
Depreciation - capital leases 11,286 19,500 20,000
Amortization - intangible assets   2,533     10,000     11,000  
Total depreciation and amortization $ 32,461   $ 47,200   $ 49,200  
 
                   

EMERITUS CORPORATION

Consolidated Supplemental Financial Information

For the Quarters Ended

(unaudited)

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

 

Non-Financial Data:

Q3 2011 Q4 2011

Q1 2012

Q2 2012

Q3 2012

Average consolidated communities 333.3 332.8 328.0 327.3 325.3
Average available units 30,173 30,096 29,667 29,629 29,513
Average occupied units 26,095 26,059 25,694 25,603 25,719
Average occupancy 86.5 % 86.6 % 86.6 % 86.4 % 87.1 %
Average monthly revenue per occupied unit $ 4,065 $ 4,080 $ 4,124 $ 4,148 $ 4,198
Calendar days 92 92 91 91 92
 

Community revenues:

Community revenues $ 313,711 $ 313,613 $ 312,724 $ 314,170 $ 319,556
Move-in fees 5,456 5,751 5,816 5,816 5,753
Move-in incentives   (930 )   (378 )   (617 )   (1,358 )   (1,434 )
Total community revenues $ 318,237   $ 318,986   $ 317,923   $ 318,628     323,874  
 

Community operating expenses:

Salaries and wages - regular and overtime $ 100,223 $ 100,884 $ 98,277 $ 98,030 $ 99,456
Average daily salary and wages $ 1,089 $ 1,097 $ 1,080 $ 1,077 $ 1,081
Average daily wages per occupied unit $ 41.75 $ 42.08 $ 42.03 $ 42.08 $ 42.03
 
Payroll taxes and employee benefits $ 33,366 $ 32,347 $ 34,839 $ 33,203 $ 32,145
Percent of salaries and wages 33.3 % 32.1 % 35.4 % 33.9 % 32.3 %
 
Prior year self-insurance reserve adjustments $ 8,605 $ 4,133 $ 397 $ 1,849 $ 190
 
Utilities $ 15,351 $ 12,586 $ 13,532 $ 12,141 $ 14,805
Average monthly cost per occupied unit $ 196 $ 161 $ 176 $ 158 $ 192
 
Facility maintenance and repairs $ 8,498 $ 8,178 $ 7,877 $ 8,427 $ 8,644
Average monthly cost per occupied unit $ 109 $ 105 $ 102 $ 110 $ 112
 
All other community operating expenses $ 57,380 $ 61,227 $ 58,551 $ 59,921 $ 61,703
Average monthly cost per occupied unit $ 733 $ 783 $ 760 $ 780 $ 780
         
Total community operating expenses $ 223,423   $ 219,355   $ 213,473   $ 213,571   $ 216,943  
 
Community operating income $ 94,814   $ 99,631   $ 104,450   $ 105,057   $ 106,931  
 
Operating income margin 29.8 % 31.2 % 32.9 % 33.0 % 33.0 %
 
                   

EMERITUS CORPORATION

Selected Consolidated and Same Community Information

For the Quarters Ended

(unaudited)

(Community revenue and operating expense in thousands)

 

 

Q3 2011     Q4 2011     Q1 2012     Q2 2012     Q3 2012

Consolidated:

Average consolidated communities 333.3 332.8 328.0 327.3 325.3
Community revenue $ 318,237 $ 318,986 $ 317,923 $ 318,628 $ 323,874
Community operating expense 223,423 219,355 213,473 213,571 216,943
Average occupancy 86.5 % 86.6 % 86.6 % 86.4 % 87.1 %
Average monthly revenue per unit $ 4,065 $ 4,080 $ 4,124 $ 4,148 $ 4,198
Operating income margin 29.8 % 31.2 % 32.9 % 33.0 % 33.0 %
 

Same Community:

Average consolidated communities 293.0 293.0 293.0 293.0 293.0
Community revenue $ 287,997 $ 287,515 $ 288,043 $ 289,454 $ 294,766
Community operating expense 191,582 191,974 192,130 191,016 196,432
Average occupancy 87.1 % 87.2 % 86.9 % 86.6 % 87.4 %
Average monthly revenue per unit $ 4,100 $ 4,085 $ 4,106 $ 4,139 $ 4,179
Operating income margin 33.5 % 33.2 % 33.3 % 34.0 % 33.4 %




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