Emeritus Announces Operating Results for Fourth Quarter and Full Year 2013

SEATTLE--(BUSINESS WIRE)--Emeritus Corporation (NYSE:ESC), a national provider of senior living services, today announced its fourth quarter and full year 2013 results.

Operating Summary 2013 Compared to 2012

• Community, ancillary services and management fee revenue increased $541.7 million, or 39.0% to $1.9 billion
• Adjusted EBITDAR increased $141.6 million, or 36.3%, to $531.4 million
• Adjusted cash from facility operations (CFFO) per share increased 17.8% to $1.99
• Total Portfolio Same Community (as defined below) average monthly revenue per occupied unit increased 2.0% to $4,027
• Total Portfolio Same Community average occupancy increased 30 basis points to 86.8%

Operating Summary for the Fourth Quarter 2013 Compared to the Fourth Quarter 2012

• Community, ancillary services and management fee revenue increased $101.2 million, or 24.6% to $513.3 million
• Adjusted EBITDAR increased $29.8 million, or 25.6% to $146.0 million
• Adjusted CFFO per share increased 32.5% to $0.53
• Total Portfolio Same Community average monthly revenue per occupied unit increased 0.7% to $4,025
• Total Portfolio Same Community average occupancy improved 30 basis points to 87.1%

Granger Cobb, President and Chief Executive Officer, commented, “Our focus on providing an enriching environment and excellent customer service to the seniors that are entrusted to our care has enabled us to post solid 2013 results. We grew same community occupancy and rate, and achieved adjusted CFFO per share growth of over 17%. We also expanded our home healthcare services to two new states while continuing to see demand for these services grow within our Florida communities.”

As of December 31, 2013, Emeritus operated 512 senior living communities:

• 497 communities are in the consolidated portfolio (consisting of owned and leased communities);
• 469 communities have been continuously operated (owned, leased, and managed) since January 1, 2012 (“Total Portfolio Same Community”) (information for this portfolio is included for certain comparative purposes but is not a subset of the Company’s historical consolidated results);
• 319 consolidated communities have been continuously operated in our consolidated portfolio since January 1, 2012 (“Consolidated Same Community”); and
• 15 communities are managed.

2013 Annual Consolidated Results

Community, ancillary services and management fee revenue increased $541.7 million, or 39.0%, to $1.9 billion in 2013, compared to $1.4 billion in the prior year. The increase in revenue was primarily due to the Company’s lease and ownership acquisition of 142 communities in the fourth quarter of 2012 and the first quarter of 2013 that the Company previously managed for a joint venture (the "Blackstone JV"). The increase was also attributable to the Company’s fourth quarter 2012 acquisition of Nurse on Call, Inc. (“NOC”), the largest Medicare-licensed provider of home healthcare services in Florida, as well as increased same community rates in the senior housing portfolios. Total average monthly revenue per occupied unit for the consolidated portfolio was $4,000 for 2013 compared to $4,127 for 2012; the rate decrease was due primarily to the acquisition of the Blackstone JV communities, which have lower average rates than the legacy Emeritus communities. Consolidated rates were also impacted by the September 2013 acquisition of the Merrill Gardens communities, which have a higher proportion of independent living units that generally have lower rates than assisted living units. Average occupancy for the consolidated portfolio grew 30 basis points to 87.1% in 2013 from 86.8% in 2012.

Total Portfolio Same Community average monthly revenue per occupied unit increased 2.0% in 2013 compared to 2012, and average occupancy improved by 30 basis points when comparing the same periods. Consolidated Same Community average monthly revenue per occupied unit increased 1.6% to $4,246 in 2013 as compared to 2012, and occupancy was 86.9% in 2013, compared to 87.0% in the prior year.

Community and ancillary services operating expenses were $1.3 billion in 2013 compared to $919.6 million in 2012. The increase was due primarily to the acquisition of the Blackstone JV communities and NOC. Community operating expenses in the Consolidated Same Community portfolio increased $23.6 million or 2.8% due primarily to increases in salaries and benefits, professional liability insurance, marketing and maintenance, offset somewhat by lower employee health insurance and bad debt expense.

Community and ancillary operating income increased $154.0 million, or 34.2%, to $604.4 million in 2013, compared to the prior year, primarily as a result of acquisition-related activities. Community and ancillary operating income margin was 31.4% in 2013, compared to 32.9% in 2012. Operating margin was impacted by acquisition-related activities between the periods, and in particular the acquisition of NOC, which operates at a lower margin percentage than the Company's historical business. Consolidated Same Community operating income margin was 32.9% in 2013 compared to 33.8% in 2012. Total Portfolio Same Community operating margin was 33.2% in 2013 as compared to 33.4% in the prior year.

The consolidated increase in general and administrative expenses in 2013 includes the effects of the Company's acquisition of NOC, which operates at a higher level of such expenditures in relation to the corresponding revenues. Excluding NOC, as well as noncash stock-based compensation expenses, senior living general and administrative expenses as a percent of total operated senior living community revenue held steady at 4.8% for both 2013 and 2012.

In 2013, Adjusted EBITDAR increased $141.6 million, or 36.3%, to $531.4 million compared to 2012, with the increase primarily driven by the increase in community operating income. Adjusted CFFO per share increased 17.8% to $1.99 per share, compared to $1.69 per share in 2012.

2013 Fourth Quarter Consolidated Results

Community, ancillary services and management fee revenue increased $101.2 million, or 24.6% to $513.3 million in the fourth quarter of 2013, compared to $412.1 million in the fourth quarter of 2012. The increase in revenues resulted primarily from the Blackstone JV and NOC acquisitions, as previously described. Total average monthly revenue per occupied unit for the consolidated portfolio was $3,968 in the fourth quarter of 2013 compared to $4,077 in the fourth quarter of 2012. The rate decrease was primarily attributable to acquisitions, as previously described. In the fourth quarter of 2013, total average occupancy for the consolidated portfolio grew 100 basis points to 87.8%, compared to 86.8% in the fourth quarter of 2012.

Total Portfolio Same Community average monthly revenue per occupied unit increased 0.7% in the fourth quarter of 2013, compared to the fourth quarter of 2012, and average occupancy improved by 30 basis points when comparing the same periods. Consolidated Same Community average monthly revenue was $4,237 in the fourth quarter of 2013, compared to $4,231 in the fourth quarter of 2012, and occupancy was 87.2% for both periods.

Community and ancillary services operating expenses were $349.4 million in the fourth quarter of 2013, compared to $275.6 million in the fourth quarter of 2012. The increase was due primarily to the acquisition of the Blackstone JV communities and NOC. Community operating expenses in the Consolidated Same Community portfolio increased $5.4 million, or 2.6%, due primarily to increases in salaries and benefits, professional liability insurance, utilities, and bad debt, offset somewhat by lower employee health insurance and workers compensation expense.

Community and ancillary operating income grew $29.3 million, or 21.9%, to $163.3 million in the fourth quarter of 2013, compared to the fourth quarter of 2012, primarily as the result of acquisition-related activities. Community and ancillary operating income margin was 31.8% in the fourth quarter of 2013 compared to 32.7% in the 2012 period, and was likewise impacted by acquisition-related activities between the periods. Consolidated Same Community operating income margin was 33.0% in the fourth quarter of 2013, compared to 34.6% in the 2012 period, and Total Portfolio Same Community operating margin was 33.6% in the fourth quarter of 2013, as compared to 34.3% in the prior-year quarter.

Excluding NOC and noncash stock-based compensation expenses, senior living general and administrative expenses as a percent of total operated senior living community revenue decreased to 4.8% in the fourth quarter of 2013, compared to 5.0% in the fourth quarter of 2012.

For the fourth quarter of 2013, Adjusted EBITDAR increased $29.8 million, or 25.6%, to $146.0 million, compared to the fourth quarter of 2012, with the increase primarily driven by the increase in community operating income. Adjusted CFFO per share increased 32.5% to $0.53 per share, compared to $0.40 per share in the fourth quarter of 2012.

Pending Merger Transaction

The Company announced today that it has entered into a definitive merger agreement with Brookdale Senior Living, Inc. ("Brookdale") (NYSE: BKD). Under the agreement, at the effective time of the merger Emeritus shareholders will receive 0.95 of a share of Brookdale common stock in exchange for each share of their Emeritus common stock. The closing of the merger is expected to occur in the third quarter of 2014, subject to the satisfaction of customary closing conditions and regulatory approvals, Hart-Scott-Rodino Antitrust Improvements Act review and shareholder approval for each company.

For additional important information regarding the pending merger transaction with Brookdale, please refer to the Company’s joint press release, available on our website at www.emeritus.com/Investors, or by reviewing our Current Report on Form 8-K to be filed with the Securities and Exchange Commission ("SEC"), which can be found in the Company’s SEC filings at www.sec.gov.

Webcast and Conference Call

The Company will participate in a joint call with Brookdale on February 20, 2014 at 5:30 P.M. Eastern Time. Domestic and international participants may access the conference call toll-free by dialing (866) 900-2996 (US/Canada Toll Free) and (706) 643-2685 (International Toll) respectively, and using the passcode 34939607. The live conference call and the conference call replay will be available under the investor relations section of each company’s website, at www.brookdale.com and www.emeritus.com. To access a telephonic replay of the conference call, please dial (855) 859-2056 (US/Canada Toll Free) or (404) 537-3406 (International Toll), passcode 34939607. A set of slides which will be referred to on this webcast will be posted to the Brookdale and Emeritus websites prior to the call.

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 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 Annual Report on Form 10-K for the year ended December 31, 2013, to be filed with the SEC.

The table below shows the reconciliation of net loss to Adjusted EBITDA/EBITDAR for the three months and year ended December 31, 2013 and 2012 (in thousands):

The following table shows the reconciliation of net cash provided by operating activities to CFFO and Adjusted CFFO (in thousands):

Recurring capital expenditures are actual costs incurred to maintain the Company’s communities for their intended business purpose and exclude expenditures for community acquisitions, expenditures incurred in the months immediately following acquisition (and specifically excludes the $30.0 million capital commitment under the lease for the former Blackstone JV communities, approximately $9.5 million of which remains to be invested as of December 31, 2013), new construction and expansions, ROI-designated projects, computer hardware and software, and vehicles.

For a more detailed understanding of Emeritus, please refer to the Company’s Annual Report on Form 10-K for the year ended December 31, 2013, to be filed with the SEC, or visit the Company’s web site at www.emeritus.com to obtain copies.

About Emeritus

Emeritus Senior Living is the nation’s largest assisted living and memory care provider, with the ability to serve nearly 54,000 residents. Over 32,000 employees support more than 500 communities throughout 45 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.

Important Additional Information about the Proposed Transaction

In connection with the proposed transaction, Brookdale plans to file with the SEC a Registration Statement on Form S-4 that will include a joint proxy statement of Emeritus and Brookdale that also constitutes a prospectus of Brookdale. Emeritus and Brookdale will mail the proxy statement/prospectus to each of their respective shareholders. This communication does not constitute a solicitation of any vote or approval. The joint proxy statement/prospectus to be filed with the SEC related to the proposed transaction will contain important information about Brookdale, Emeritus, the proposed transaction and related matters. WE URGE INVESTORS AND SHAREHOLDERS TO READ THE JOINT PROXY STATEMENT/PROSPECTUS REGARDING THE PROPOSED TRANSACTION WHEN IT BECOMES AVAILABLE BECAUSE IT WILL CONTAIN IMPORTANT INFORMATION. You may obtain free copies of the joint proxy statement/prospectus, when it is filed with the SEC, and other documents filed by Emeritus and Brookdale with the SEC through the website maintained by the SEC at www.sec.gov. The joint proxy statement/prospectus, when it is filed with the SEC, and the other documents filed by Emeritus and Brookdale with the SEC may also be obtained for free by accessing Emeritus' website at www.emeritus.com (which website is not incorporated herein by reference) and clicking on the “Investors” link and then clicking on the link for “SEC Filings” or by accessing Brookdale’s website at www.brookdale.com (which website is not incorporated herein by reference) and clicking on “About Brookdale” and then clicking on the link for “Investor Relations” and then the link “SEC Filings.”

Emeritus, Brookdale and their respective directors and officers and certain other members of management and employees may be deemed to be participants in the solicitation of proxies from its shareholders in connection with the merger transaction. Information regarding these persons who may, under the rules of the SEC, be considered participants in the solicitation of shareholders in connection with the proposed merger transaction will be set forth in the joint proxy statement/prospectus described above when it is filed with the SEC. Additional information regarding each of Emeritus’ and Brookdale’s respective executive officers and directors, including shareholdings, is included in Emeritus’ definitive proxy statement for 2013, which was filed with the SEC on April 9, 2013, and Brookdale’s definitive proxy statement for 2013, which was filed with the SEC on April 30, 2013, respectively. You can obtain free copies of this document from Emeritus or Brookdale, respectively, using the contact information above.

Forward-Looking Statements

Statements made in this communication and related statements that express Emeritus' or our management’s intentions, hopes, indications, beliefs, expectations, or predictions of the future constitute forward-looking statements, as defined by the Private Securities Litigation Reform Act of 1995, and relate to matters that are not historical facts. 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 ability to obtain licensure, regulatory and other third party approvals of the merger transaction on the proposed terms and schedule; the ability to obtain shareholder approval of the pending merger transaction; any delay in the closing of the pending merger transaction; disruptions to our business as a result of the pending merger transaction, affecting relationships with residents, employees and other business relationships; 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 without adversely affecting occupancy levels; successfully integrating home health agency services into our senior living communities; uncertainties regarding government-reimbursement programs for our services; 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 SEC, including “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2013 to be filed with the SEC. The Company undertakes no obligation to update the information provided herein.