Filed by Brookdale Senior Living Inc.
Pursuant to Rule 425 under the Securities Act of 1933
and deemed filed pursuant to Rule 14a-12
of the Securities Exchange Act of 1934
Subject Company: Emeritus Corporation
(Commission File No. 001-14012)
On February 20, 2014, Brookdale and Emeritus issued the following updated presentation in connection with the merger between Brookdale and Emeritus:
Brookdale Merger with Emeritus Senior
Living
February 20, 2014
Forward-Looking Statements
C e r t a i n i t e m s in t h i s p r e s e n t a t i o n and s t a t e m e n t s m a d e by or on b e h a l f of B r o o k d a l e S e n i o r L i vi n g I n c . a n d E m e r i
t u s C o r p o r a t i o n r e l a t i n g h e r e t o m a y c o n s t i t u t e f o r w a r d—l o o k i n g s t a t e m e n t s wi t h i n t h e m e a n i n g of t h e P r i v a t e S e c u r i t i e s L i t i g a t i o n R e f o r m A c t of
1995 . T h o s e f o r w a r d—l o o k i n g s t a t e m e n t s a r e s u b j e c t to v a r i o u s r i s k s a n d u n c e r t a i n t i e s . F o r w a r d—l o o k i n g s t a t e m e n t s a r e g e n e r a l l y i d e n t i f i a b l
e by u s e of f o r w a r d—l o o k i n g t e r m i n o l o g y s u c h as “ m a y , “ “ wi l l , “ “ s h o u l d , “ “ p o t e n t i a l , “ “ i n t e n d , “ “ e xp e c t , “ “
e n d e a v o r , “ “ s e e k , “ “ a n t i c i p a t e , “ “ e s t i m a t e , “ “ o v e r e s t i m a t e , “ “ u n d e r e s t i m a t e , “ “ b e l i e ve , “ “ c o u l d ,
“ “ w o u l d , “ “ p r o j e c t , “ “ p r e d i c t , “ “ c o n t i n u e , “ “ p l a n “ or o t h e r s i m i l a r wo r d s or e xp r e s s i o n s . A l t h o u g h we b e l i e v e t h e e
xp e c t a t i o n s r e f l e c t e d in a n y f o r wa r d—l o o k i n g s t a t e m e n t s a r e b a s e d on r e a s o n a b l e a s s u m p t i o n s , we c a n g i v e no a s s u r a n c e t h a t o u r e xp e c t a t i o n s wi l l be a
t t a i n e d and a c t u a l r e s u l t s c o u l d d i f f e r m a t e r i a l l y f r o m t h o s e p r o j e c t e d . F a c t o r s w h i c h c o u l d h a v e a m a t e r i a l a d v e r s e e f f e c t on o u r o p e r a t i o n s a n d f u
t u r e p r o s p e c t s or w h i c h c o u l d c a u s e e v e n t s or c i r c u m s t a n c e s to d i f f e r f r o m t h e f o r w a r d—l o o k i n g s t a t e m e n t s i n c l u d e , b u t a r e n o t l im i t e d t o , t h e r i s k
a s s o c i a t e d wi t h t h e c u r r e n t g l o b a l e c o n o m i c s i t u a t i o n a n d i t s im p a c t upon c a p i t a l m a r k e t s a n d l i q u i d i t y ; c h a n g e s in g o v e r n m e n t a l r e i m b u r s e m e n t p r o g
r a m s ; our i n a b i l i t y to e xt e n d ( o r r e f i n a n c e ) d e b t ( i n c l u d i n g o u r c r e d i t and l e t t e r of c r e d i t f a c i l i t i e s ) as it m a t u r e s ; t h e r i s k t h a t we m a y n o t be a b l e to s a t
i s f y t h e c o n d i t i o n s p r e c e d e n t to e xe r c i s i n g t h e e xt e n s i o n o p t i o n s a s s o c i a t e d w i t h c e r t a i n of o u r d e b t a g r e e m e n t s ; e ve n t s w h i c h a d v e r s e l y a f f e c t t h e
a b i l i t y of s e n i o r s to a f f o r d o u r m o n t h l y r e s i d e n t f e e s or e n t r a n c e f e e s ; t h e c o n d i t i o n s of h o u s i n g m a r k e t s in c e r t a i n g e o g r a p h i c a r e a s ; o u r a b i l i t y to g
e n e r a t e s u f f i c i e n t c a s h f l o w to c o v e r r e q u i r e d i n t e r e s t a n d l o n g—t e r m o p e r a t i n g l e a s e p a ym e n t s ; t h e e f f e c t of o u r i n d e b t e d n e s s a n d l o n g—t e r m o p
e r a t i n g l e a s e s on o u r l i q u i d i t y ; t h e r i s k of l o s s of p r o p e r t y p u r s u a n t to o u r m o r t g a g e d e b t and l o n g -t e r m l e a s e o b l i g a t i o n s ; t h e p o s s i b i l i t i e s t h a t c h a
n g e s in t h e c a p i t a l m a r k e t s , i n c l u d i n g c h a n g e s in i n t e r e s t r a t e s a n d / o r c r e d i t s p r e a d s , or o t h e r f a c t o r s c o u l d m a k e f i n a n c i n g m o r e e xp e n s i v e or u n a v a
i l a b l e to us ; o u r d e t e r m i n a t i o n f r o m t i m e to t i m e to p u r c h a s e a n y s h a r e s u n d e r t h e r e p u r c h a s e p r o g r a m ; o u r a b i l i t y to f u n d a n y r e p u r c h a s e s ; o u r a b i l i t y
to e f f e c t i ve l y m a n a g e o u r g r o wt h ; o u r a b i l i t y to m a i n t a i n c o n s i s t e n t q u a l i t y c o n t r o l ; d e l a ys in o b t a i n i n g r e g u l a t o r y a p p r o v a l s ; t h e r i s k t h a t we m a y n
o t be a b l e to e xp a n d , r e d e ve l o p and r e p o s i t i o n o u r c o m m u n i t i e s in a c c o r d a n c e wi t h o u r p l a n s ; o u r a b i l i t y to c o m p l e t e a c q u i s i t i o n s and i n t e g r a t e t h e m i n t o
o u r o p e r a t i o n s ; c o m p e t i t i o n f o r t h e a c q u i s i t i o n of a s s e t s ; o u r a b i l i t y to o b t a i n a d d i t i o n a l c a p i t a l on t e r m s a c c e p t a b l e to us ; a d e c r e a s e in t h e o v e r a l
l d e m a n d f o r s e n i o r h o u s i n g ; o u r vu l n e r a b i l i t y to e c o n o m i c d o w n t u r n s ; a c t s of n a t u r e in c e r t a i n g e o g r a p h i c a r e a s ; t e r m i n a t i o n s of o u r r e s i d e n t a g r e e
m e n t s a n d va c a n c i e s in t h e l i vi n g s p a c e s we l e a s e ; e a r l y t e r m i n a t i o n s or non—r e n e w a l of m a n a g e m e n t a g r e e m e n t s ; i n c r e a s e d c o m p e t i t i o n f o r p e r s o n n e l
; i n c r e a s e d u n i o n a c t i vi t y ; d e p a r t u r e of o u r k e y o f f i c e r s ; i n c r e a s e s in m a r k e t i n t e r e s t r a t e s ; e n vi r o n m e n t a l c o n t a m i n a t i o n at a n y of o u r f a c i l i t i e s ;
f a i l u r e to c o m p l y wi t h e xi s t i n g e n vi r o n m e n t a l l a ws ; an a d ve r s e d e t e r m i n a t i o n or r e s o l u t i o n of c o m p l a i n t s f i l e d a g a i n s t us ; t h e c o s t and d i f f i c u l t y of c o m
p l yi n g w i t h i n c r e a s i n g and e v o l vi n g r e g u l a t i o n ; r i s k s r e l a t i n g to t h e m e r g e r of B r o o k d a l e a n d E m e r i t u s , i n c l u d i n g wi t h r e s p e c t to t h e s a t i s f a c t i o n of c
l o s i n g c o n d i t i o n s to t h e m e r g e r ; u n a n t i c i p a t e d d i f f i c u l t i e s a n d / o r e xp e n d i t u r e s r e l a t i n g to t h e m e r g e r ; t h e r i s k t h a t r e g u l a t o r y a p p r o va l s r e q u i r
e d f o r t h e m e r g e r a r e n o t o b t a i n e d or a r e o b t a i n e d s u b j e c t to c o n d i t i o n s t h a t a r e n o t a n t i c i p a t e d ; u n c e r t a i n t i e s as to t h e t i m i n g of t h e m e r g e r ; l i t i g a t
i o n r e l a t i n g to t h e m e r g e r ; t h e i m p a c t of t h e t r a n s a c t i o n on t h e C o m p a n y’ s r e l a t i o n s h i p s wi t h r e s i d e n t s , e m p l o y e e s and t h i r d p a r t i e s ; and t h e i n a b i l i
t y to o b t a i n , or d e l a ys in o b t a i n i n g c o s t s a vi n g s a n d s y n e r g i e s f r o m t h e m e r g e r ; as w e l l as o t h e r r i s k s d e t a i l e d f r o m t im e to t i m e in o u r f i l i n g s wi t h t h e S e c u
r i t i e s a n d E xc h a n g e C o m m i ss i o n , i n c l u d i n g o u r A n n u a l R e p o r t on F o r m 10—K a n d Q u a r t e r l y R e p o r t s on F o r m 10—Q . We e xp r e s s l y d i s c l a i m a n y o b l i g a t i o n to
r e l e a s e p u b l i c l y any u p d a t e s or r e vi s i o n s to any f o r w a r d—l o o k i n g s t a t e m e n t s c o n t a i n e d h e r e i n to r e f l e c t a n y c h a n g e in o u r e x p e c t a t i o n s wi t h regard t h e r e
t o or c h a n g e in e ve n t s , c o n d i t i o n s or c i r c u m s t a n c e s on wh i c h any s t a t e m e n t is b a s e d .
1
Additional Information
In c o n n e c t i o n wi t h t h e m e r g e r , t h e C o m p a n y p l a n s to f i l e wi t h t h e S E C a R e g i s t r a t i o n S t a t e m e n t on F o r m S—4 t h a
t wi l l i n c l u d e a j o i n t p r o xy s t a t e m e n t / p r o s p e c t u s , as w e l l as o t h e r r e l e v a n t d o c u m e n t s c o n c e r n i n g t h e p r o p o s e d t r a n s a c t i o n . T H E C O MP A N Y S T O C K H O L D E
R S A R E U R G E D TO R E A D T H E J O I N T P R O XY S T A T E M E N T / P R O S P E C T U S R E G A R D I N G T H E ME R G E R W H E N IT BE C O ME S A V A I L A B L E A N D A N Y O T H E R R E L E V A N T D O C U ME N T S F I L E D W IT H T H E
S E C , AS W E L L AS A N Y A ME N D ME N T S OR S U P P L E ME N T S TO T H O S E D O C U ME N T S , B E C A U S E T H E Y W I L L C O N T A I N I MP O R T A N T I N F O R MA T I O N . A f r e e c o p y of t h e j o i n t p r o xy s t a t e m e n t
/ p r o s p e c t u s and o t h e r f i l i n g s c o n t a i n i n g i n f o r m a t i o n a b o u t t h e Co m p a n y a n d E m e r i t u s Co r p o r a t i o n m a y be o b t a i n e d at t h e S E C’ s I n t e r n e t s i t e ( h t t p : /
/ www. s e c . g o v) . Y o u wi l l a l s o be a b l e to o b t a i n t h e s e d o c u m e n t s , f r e e of c h a r g e , f r o m t h e C o m p a n y at www . b r o o k d a l e . c o m u n d e r t h e h e a d i n g “ A b o u t B r o o k d a
l e / I n v e s t o r R e l a t i o n s “ or f r o m E m e r i t u s C o r p o r a t i o n at www. e m e r i t u s . c o m under t h e h e a d i n g “ I n ve s t o r s . “
T h e C o m p a n y a n d E m e r i t u s C o r p o r a t i o n a n d t h e i r r e s p e c t i ve d i r e c t o r s and e xe c u t i v e o f f i c e r s m a y be d e e m e d to be
p a r t i c i p a n t s in t h e s o l i c i t a t i o n of p r o xi e s f r o m t h e C o m p a n y’ s and E m e r i t u s C o r p o r a t i o n ’ s s t o c k h o l d e r s in c o n n e c t i o n wi t h t h e m e r g e r . I n f o r m a t
i o n a b o u t t h e d i r e c t o r s and e xe c u t i v e o f f i c e r s of t h e C o m p a n y a n d t h e i r o w n e r s h i p of C o m p a n y c o m m o n s t o c k is s e t f o r t h in t h e p r o xy s t a t e m e n t f o r t h e C o m p a
n y’ s 2 0 1 3 a n n u a l m e e t i n g of s t o c k h o l d e r s , as f i l e d wi t h t h e SEC on S c h e d u l e 14 A on A p r i l 30 , 2 0 1 3 . I n f o r m a t i o n a b o u t t h e d i r e c t o r s a n d e xe c u t i ve o f f i c e r
s of E m e r i t u s C o r p o r a t i o n a n d t h e i r o wn e r s h i p of E m e r i t u s C o r p o r a t i o n c o m m o n s t o c k is s e t f o r t h in t h e p r o xy s t a t e m e n t f o r E m e r i t u s Co r p o r a t i o n ’ s 2 0
1 3 a n n u a l m e e t i n g of s t o c k h o l d e r s , as f i l e d wi t h t h e SEC on S c h e d u l e 14 A on A p r i l 9 , 2013 . A d d i t i o n a l i n f o r m a t i o n r e g a r d i n g t h e i n t e r e s t s of t h o s e p a r t i c i p
a n t s and o t h e r p e r s o n s w h o m a y be d e e m e d p a r t i c i p a n t s in t h e m e r g e r m a y be o b t a i n e d by r e a d i n g t h e j o i n t p r o xy s t a t e m e n t r e g a r d i n g t h e m e r g e r w h e n it b e c o m
e s a v a i l a b l e . F r e e c o p i e s of t h i s d o c u m e n t m a y be o b t a i n e d as d e s c r i b e d in t h e p r e c e d i n g p a r a g r a p h . T h i s p r e s e n t a t i o n s h a l l n o t c o n s t i t u t e an o f f e r to s
e l l or t h e s o l i c i t a t i o n of an o f f e r to s e l l or t h e s o l i c i t a t i o n of an o f f e r to b u y a n y s e c u r i t i e s , n o r s h a l l t h e r e be any s a l e of s e c u r i t i e s in any j u r i s d i c t i o n in
w h i c h s u c h o f f e r , s o l i c i t a t i o n or s a l e w o u l d be u n l a wf u l p r i o r to r e g i s t r a t i o n or q u a l i f i c a t i o n u n d e r t h e s e c u r i t i e s l a ws of a n y s u c h j u r i s d i c t i o n . No o
f f e r of s e c u r i t i e s s h a l l be m a d e e xc e p t by m e a n s of a p r o s p e c t u s m e e t i n g t h e r e q u i r e m e n t s of S e c t i o n 10 of t h e S e c u r i t i e s A c t of 1933 , as a m e n d e d .
2
Transaction Overview
Brookdale Senior Living (“BKD”) is merging with Emeritus Corporation (“ESC”) in a 100% stock-for-stock transaction
Exchange Ratio Each share of ESC will be converted into 0.95 of a share of BKD
Ownership 73.1%
BKD / 26.9% ESC
Expect to have 171mm (approx.) shares outstanding following the
Shares Outstanding merger
Expected Close Expected to close in the third
quarter of 2014
3
Transaction Rationale
Combined company will be largest senior living solutions platform in the U.S. – create significant shareholder value in evolving post-acute market
Value of Owned Real Estate
Value of owned real estate increases as EBITDA grows
Unlock up to $ 350mm to $ 400mm of embedded value in purchase options
Deploy capital in ESC
assets (“Program Max 2 . 0”)
Revenue Synergies
Offer new
products/services to 100K residents with $ 4 . 5bn of annual healthcare spend
Expansion of existing products/services – drive up to $ 100mm of synergies per
year
Cost Synergies
Significant cost synergies resulting from greater scale
Expect to reduce operating expenses by up to $ 45mm annually
(1) Note: See
reconciliations of Non-GAAP measures at the end of the presentation
4
Combined Company Overview
Merger creates the largest owner—operator of senior housing in the U . S with approximately 1,200 properties and 113,000 units
$ 4 . 9bn of combined revenues in 2013 – over 80% from private pay sources
Diversified
Product Mix
(Properties)
(% of Total) Skilled Nursing
5,164
5%
Independent
Living
34,449
31% Assisted
59,026
52% Living
14,055
12%
Memory
Care
Diversified Operating Model
(Properties)
(% of Total)
Managed
18,900
17% Owned
38,442
34%
55,352
49%
Leased
Merger Significantly Benefits All
Stakeholders
Residents Associates Shareholders
Ability to share best
practices across two leading care providers
Seamless transition with continuity of community associates
Expanded and better-coordinated services and programs
Better systems and best practices to
support associates
More opportunities to enhance career planning, mobility & training
Strong national brand increases ability to recruit and retain talent
Substantial synergies and
potential for upside drives value
Improved brand and larger market cap. strengthens recognition
Mix of owned, leased, and managed maximizes upside optionality
Grow Real Estate Value
Underlying value of owned real estate increases through organic growth
Achieve CFFO
(1) accretion by deploying capital in ESC assets (“ Program Max 2 . 0”)
Every $ 100mm of capital could drive +$ 12—$ 15mm, or +$ 0 . 04—$
0 . 05 CFFO per share
Incremental Owned Real Estate Value/Share(2) Growth
(Incremental Value/Share) (EBITDA Growth $ mm)
$10.00 $9.34 $ 120
$8.00 $ 100
$ 104
$6.02 $ 80
$6.00
$67 $ 60
$4.00
$2.91 $ 40
$2.00 $32 $ 20
$0.00 $ 0
Year 1 Year 2 Year 3
Excludes cash flow from
entry fee communities .
Entry fee cash flow is
approximately $ 75 million in
all years .
Excludes future benefits of
community—based operating
synergies .
Excludes potential Program
Max 2 . 0 projects .
Cash From Facility Operations (CFFO)—See reconciliations of Non-GAAP measures at the end of the presentation
Assumes 7% EBITDA growth and 6.5% cap rate.
Embedded Real Estate Value In Leased
Portfolio
$350—$ 400 million of present value under bargain purchase options
Combined company has 87 assets with bargain purchase options on approximately 10,500 units
Opportunity over time to recapture between $ 2 . 25 – $ 2 . 75 billion of aggregate real estate
Approximately 60% exercisable by end of 2017
Approximately 40% exercisable 2018 and beyond
Does not include leases with fair market value purchase options
Organic Growth – Brand Recognition
Merger strengthens BKD’s national presence, supports rate and occupancy growth
512 new communities; 6 . 5 million people +80 years old now within 10 miles of a community
Increases geographic presence to 330 markets in 46 states
Cost—effective
ability to drive brand recognition for ESC properties
Leverage BKD’s existing national TV & magazine campaign, which was initiated in 2013
Brand Supports Leading Rate Growth
(Rate Growth %)
3.0%
2.0%
1.0%
BKD Industry (1)
(1) NIC Top 100, 2013.
Revenue Synergies – Healthcare
Delivery
A significant portion of healthcare spend occurs in the later years of life
Capture part of $ 4 . 5bn of healthcare spend per year generated by 100K residents
Earning 1%
of $ 4 . 5bn would drive $ 45mm of revenue
An Integrated Post-Acute Care Spectrum(1)
Current BKD Services
Potential BKD Services
Geriatric Case/Disease Palliative Independent Outpatient
Assessment Management Care Living
Therapies
Community Services Home Care Senior Living Skilled Nursing Hospitalization
Wellness Home Health Hospice Assisted Inpatient
Programs Care Living Rehab
(1) Source: The Advisory Board
Revenue Synergies – Track Record
BKD has a successful track record in capturing resident healthcare spend by offering new products and services, including home health and therapy
Expansion of existing home health and therapy services to ESC markets would generate $ 100mm of revenue, or $ 0 . 14 per share of accretion for year 3
Historical BKD Ancillary Results
(Revenue $mm)
$242
$250 $225
$206
$200 $190
$150
$150
$103
$100 $78
$50
$0
2007 2008 2009 2010 2011 2012 2013
Potential Impact of Rollout to ESC
(Revenue $mm)
$120
$101
$100 $88
$80
$63
$60
$38
$40
$20
$0
2014P 2015P 2016P 2017P
11
Cost Synergies
Combined company is expected to benefit from scale
Up to $ 45mm of G&A and property level
operating expense synergies
Nationwide Presence
Estimated Cost Savings
G&A $25mm
Property Level OpEx $20mm
Total $45mm
Per Share $0.26
12
Financial Impact
Strong balance sheet available to capitalize on real estate opportunities
Post—merger
leverage consistent with historical levels and BKD target
Net Debt to EBITDA(1)
10.0x
8.0x
6.2x 6.0x
6.0x 5.6x
4.0x
2.0x
0.0x
Pre Post Target
Acquisition Acquisition
Pro Forma Acq. Summary(1)
Revenues $4.9bn
Adj. EBITDA $867mm
CFFO $401mm
Based on 2013 Brookdale and Emeritus public reporting, excludes synergies.
Note: See reconciliations of Non-GAAP measures at the end of the presentation
Transaction Rationale
Combined company will be largest senior living solutions platform in the U.S. – create significant shareholder value in evolving post-acute market
1 Value of Owned Real Estate
Value of owned real estate increases as EBITDA grows
Unlock up to $350mm to $400mm of embedded value in purchase options
Deploy capital in ESC
assets (“Program Max 2.0”)
2 Revenue Synergies
Offer new
products/services to 100K residents with $4.5bn of annual healthcare spend Expansion of existing products/services – drive up to $100mm of synergies per year
3 Cost Synergies
Significant cost synergies resulting from greater scale
Expect to reduce operating expenses by up to $45mm annually
(1) Note: See
reconciliations of Non-GAAP measures at the end of the presentation
Potential for Merger to Drive Upside
Management Base Case – Year 3 Accretion
G&A $ 0.14
Cost
Property Level OpEx $ 0.12
Revenue New Ancillary Services $ 0.14
Total CFFO/Share Accretion $ 0.40
Levers for Potential Upside
Value of purchase options
Program Max 2.0 at ESC properties
Implement innovative products/services to capture
residents’ healthcare spend
Additional synergies and cost savings
(1)
Note: See reconciliations of Non-GAAP measures at the end of the presentation
Roadmap to Closing
1. Customary regulatory and lender approvals
2. BKD and ESC shareholder approvals
3. Closing expected in the third quarter of 2014
2
Brookdale Non-GAAP Financial
Measure Definitions
Adjusted EBITDA
Adjusted EBITDA is a measure of operating
performance that is not calculated in accordance with U.S. generally accepted accounting principles (“GAAP”). Adjusted EBITDA should not be considered in isolation or as a substitute for net income, income from operations or cash flows
provided by or used in operations, as determined in accordance with GAAP. Adjusted EBITDA is a key measure of the Company’s operating performance used by management to focus on operating performance and management without mixing in items of
income and expense that relate to long -term contracts and the financing and capitalization of the business.
W e define Adjusted EBITDA as net income (loss) before
provision (benefit) for income taxes, non -operating (income) expense items, (gain) loss on sale or acquisition of communities (including gain (loss) on facility lease termination), depreciation and amortization (including non -cash impairment
charges), straight -line lease expense (income), amortization of deferred gain, amortization of deferred entrance fees, non -cash stock-based compensation expense, and change in future service obligation and including entrance fee receipts and
refunds (excluding (i) first generation entrance fee receipts from the sale of units at a recently opened entrance fee CCRC prior to stabilization and (ii) first generation entrance fee refunds not replaced by second generation entrance
fee receipts at the recently opened community prior to stabilization).
Cash From Facility Operations
Cash From Facility Operations (CFFO) is a measurement of liquidity that is not calculated in accordance with GAAP and should not be considered in isolation as a substitute for cash
flows provided by or used in operations, as determined in accordance with GAAP. W e define CFFO as net cash provided by (used in) operating activities adjusted for changes in operating assets and liabilities, deferred interest and fees added to
principal, refundable entrance fees received, first generation entrance fee receipts at a recently opened entrance fee CCRC prior to stabilization, entrance fee refunds disbursed adjusted for first generation entrance fee refunds not replaced by
second generation entrance fee receipts at the recently opened community prior to stabilization, lease financing debt amortization with fair market value or no purchase options, gain (loss) on facility lease termination, recurring capital
expenditures (net), distributions from unconsolidated ventures from cumulative share of net earnings, CFFO from unconsolidated ventures, and other. Recurring capital expenditures include routine expenditures capitalized in accordance with GAAP that
are funded from current operations. Amounts excluded from recurring capital expenditures consist primarily of major projects, renovations, community repositionings, expansions, systems projects or other non-recurring or unusual capital items
(including integration capital expenditures) or community purchases that are funded using lease or financing proceeds, available cash and/or proceeds from the sale of communities that are held for sale.
Brookdale Adjusted EBITDA Reconciliation
The table below reconciles Adjusted EBITDA from net loss for the three months and years ended December 31, 2013 and 2012 (in thousands):
Three Months Ended December 31(1) , Years Ended December 31(1) ,
2013 2012 2013 2012
Net loss $ (975) $ (24,692) $ (3,584) $ (66,467)
(Benefit)
provision for income taxes (1,516) (1,040) 1,756 1,519
Equity in (earnings) loss of unconsolidated ventures (493) 3,277 (1,484) 3,488
Loss on extinguishment of debt 319 — 1,265 221
Other non-operating
income (1,360) (201) (2,725) (593)
Interest expense:
Debt
24,840 24,492 96,131 98,183
Capitalized lease obligation 6,029 7,103 25,194 30,155
Amortization of deferred financing costs and debt discount 4,037 4,479 17,054 18,081
Change in
fair value of derivatives and amortization (386) (7) (980) 364
Interest income (312) (1,792) (1,339) (4,012)
Income from operations 30,183 11,619 131,288 80,939
Gain on facility lease termination —
(8,804) — (11,584)
Loss on acquisition — — — 636
Depreciation and amortization 68,200 62,500 268,757 252,281
Asset impairment
10,233 19,348 12,891 27,677
Straight-line lease expense 347 1,344 2,597 6,668
Amortization of deferred gain (1,093) (1,093) (4,372) (4,372)
Amortization of entrance fees (7,831) (6,527) (29,009) (25,362)
Non-cash stock-based compensation expense 5,202 6,335 25,978 25,520
Change in
future service obligation (1,917) 2,188 (1,917) 2,188
Entrance fee receipts (2) 32,482 22,890 92,331 82,705
Entrance fee disbursements (10,821) (7,801) (35,325) (27,356)
Adjusted EBITDA $
124,985 $ 101,999 $ 463,219 $ 409,940
(1) The calculation of Adjusted EBITDA includes integration, transaction-related and EMR roll-out costs of $4.1 million and
$14.5 million for the three months and year ended December 31, 2013, respectively. The calculation of Adjusted EBITDA includes integration, transaction-related and EMR roll-out costs of $7.2 million and $23.5 million for the three months and
year ended December 31, 2012, respectively.
(2) Includes the receipt of refundable and non-refundable entrance fees.
18
Brookdale Cash From Facility Operations
Reconciliation
The table below reconciles CFFO from net cash provided by operating activities for the three months and years ended December 31,
2013 and 2012 (in thousands):
Three Months Ended December 31(1) , Years Ended
December 31(1) ,
2013 2012 2013 2012
Net cash provided by operating
activities $ 117,046 $ 82,991 $ 366,121 $ 290,969
Changes in operating assets and liabilities (27,473) (14,772) (33,198) (20,698)
Refundable entrance fees received(2) 18,875 13,088 48,140 42,600
Entrance fee refunds
disbursed (10,821) (7,801) (35,325) (27,356)
Recurring capital expenditures, net (10,786) (10,168) (42,901) (38,306)
Lease financing debt amortization with fair market value or no purchase options (3,594) (3,132) (13,927) (12,120)
Distributions from unconsolidated ventures from cumulative share of net earnings (602) (72) (2,691) (1,507)
CFFO from unconsolidated ventures 1,825 1,279 7,804 5,376
Cash From Facility Operations $
84,470 $ 61,413 $ 294,023 $ 238,958
(1) The calculation of Cash From Facility Operations includes integration, transaction-related and EMR roll-out costs of $4.1
million and $14.5 million for the three months and year ended December 31, 2013, respectively. The calculation of Cash From Facility Operations includes integration, transaction-related and EMR roll-out costs of $7.2 million and $23.5 million
for the three months and year ended December 31, 2012, respectively.
(2) Total entrance fee receipts for the three months ended December 31, 2013 and
2012 were $32.5 million and $22.9 million, respectively, including $13.6 million and $9.8 million, respectively, of non-refundable entrance fee receipts included in net cash provided by operating activities. Total entrance fee receipts for the years
ended December 31, 2013 and 2012 were $92.3 million and $82.7 million, respectively, including $44.2 million and $40.1 million, respectively, of non-refundable entrance fee receipts included in net cash provided by operating activities.
Emeritus Non-GAAP Financial Measure
Definitions
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.
Emeritus Adjusted EBITDA/EBITDAR
Reconciliation
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):
Three Months Ended Year Ended
December 31,
December 31,
2013 2012 2013 2012
Net loss $ (49,059) $
(27,525) $ (152,970) $ (85,075)
Depreciation and amortization 45,869 42,605 181,483 140,629
Interest income (116) (105) (462) (408)
Interest expense 71,659 60,862 287,389
176,945
Net equity losses for unconsolidated joint ventures 32 76 125 576
Income tax (benefit) provision (1,480) (2,078) 639 (1,158)
Loss
from discontinued operations 5,878 — 11,100 7,705
Amortization of above/below market rents 1,230 1,309 4,930 6,299
Amortization of deferred gains (230) (264) (957) (1,046)
Loss on early
extinguishment of debt 207 53 204 186
Stock-based compensation 4,154 2,727 14,505 11,046
Change in fair value of derivative financial
instruments 83 29 6 948
Deferred revenue (30) (620) 2,605 (1,375)
Deferred straight-line rent 3,419 2,859
4,788 6,080
Impairment of long-lived assets 8,227 — 8,227 2,135
Transaction and financing costs 3,904 3,284 5,737 5,923
Transition costs
1,142 — 2,189 —
Self-insurance reserve adjustments, prior years 5,952 3,560 19,376 5,996
Adjusted EBITDA 100,841 86,772 388,914 275,406
Lease expense 45,157 29,446 142,498 114,382
Adjusted EBITDAR $ 145,998 $ 116,218 $ 531,412 $ 389,788
Emeritus Cash From Facility Operations
Reconciliation
The following table shows the reconciliation of net cash provided by operating activities to CFFO and Adjusted CFFO (in thousands):
Three Months Ended Year Ended
December 31, December 31,
2013 2012 2013 2012
Net cash provided by operating activities $ 4,348 $ 5,937 $ 98,189 $
116,558
Changes in operating assets and liabilities, net 25,002 17,005 20,092(14,735)
Repayment of capital lease and financing obligations(7,664)(5,432)(27,146)(17,882)
Recurring
capital expenditures(7,780)(9,303)(26,473)(23,947)
Distributions from unconsolidated joint ventures (a) 1 161 472 1,177
Cash From Facility Operations 13,907 8,368 65,134 61,171
Transaction costs 3,904 3,030 5,737
5,510
Transition costs 1,142 — 2,189 —
Self-insurance reserve
adjustments, prior years 5,952 3,560 19,376 5,996
Unusual income tax items (b) — 3,048 — 3,048
Adjusted Cash From Facility Operations $ 24,905 $ 18,006 $ 92,436 $ 75,725
CFFO per share $
0.30 $ 0.19 $ 1.40 $ 1.37
Adjusted CFFO per share $ 0.53 $ 0.40 $ 1.99 $ 1.69
(a) Excludes distributions resulting from the Blackstone JV transaction, the sale of communities and refinancing of debt.
(b) Consists of state tax expense related to the taxable gain on the Blackstone JV transaction.