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Emeritus Corporation (ESC)

Q4 2008 Earnings Call Transcript

March 16, 2009 5:00 pm ET


Ken Avalos – IR, ICR

Dan Baty – Chairman and Co-CEO

Ray Brandstrom – EVP Finance, CFO and Secretary

Granger Cobb – President and Co-CEO


Donald Hooker – UBS

Mark Biffert – Oppenheimer

Rob Mains – Morgan Keegan

Dan Bernstein – Stifel Nicolaus

Carter Dunlap [ph] – Dunlap Equity Management



Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the Emeritus Corporation fourth quarter and year-end 2008 earnings conference call. At this time, participants are in a listen-only mode. Following the presentation, we will conduct a question-and answer-session. Instructions will be provided at that time for you to queue up for questions. I would like to remind everyone this conference is being recorded. And I would like to turn the conference over to Mr. Ken Avalos. . Mr. Avalos, please go ahead.

Ken Avalos

Thanks, operator. Good afternoon and thank you for joining us on the Emeritus Corporation fourth quarter and year-end 2008 conference call. On the call with today are Dan Baty, Chairman and Co-CEO; Granger Cobb, President and Co-CEO; and Ray Brandstrom, Chief Financial Officer.

Before we begin, I would like to remind everyone of the Safe Harbor statements under the Private Securities Litigation Reform Act of 1995. The following prepared remarks contain forward-looking statements and management may make additional forward-looking statements in response to your questions. These statements do not guarantee future performance and therefore undue reliance should not be placed on them.

For a more detailed discussion on the factors that could cause actual results to differ materially from those suggested in any forward-looking statements, we refer you to the Company’s most recent 10-K filing.

With that, it is my pleasure to turn the call over to Mr. Dan Baty. Dan, please go ahead.

Dan Baty

The key measures in looking how Emeritus is doing are pretty simple; it’s occupancy, rate, and margin. A lot of effort, operations goes into getting these results, but they provide a pretty good guide to our progress. Over the last eight months or so, our occupancy has been basically flat. Our rate over the last year has gone up 6%. Our operating margin has increased by 1.5 points. Overhead on a dollar basis has been flat for the past year.

Our goal this year is to manage our cost, to pick up one to two points spread between our cost and our revenue. From operations then we anticipate a good and improved in ’09. In addition, we have high expectations of growth. We earn the best financial position of any of our peers and we have a strong operating team. Our average tenure for our six divisional operating people is eight years with the Company. So, it’s very stable, very experienced and we look at it as a good time and good opportunity.

Senior housing has traditionally been a counter-cyclical business. ESC Emeritus is doing well and there is nothing to indicate it will not continue to do so. Ray?

Ray Brandstrom

Thank you, Dan. Good afternoon everyone. I’d like to begin by discussing our fourth quarter results, given an update on our balance sheet, and finish by providing some comments regarding our 2009 financial guidance.

It’s important to note that the fourth quarter of 2008 marks the first quarter of comparable year-over-year financial results in relations to the Summerville merger, which added 81 communities in 13 states comprising 7925 units to our consolidated portfolio. This transaction closed on September 1st of 2007.

For the year, total revenue was $769.4 million. For the fourth quarter total community revenue was $202.2 million compared to $182.5 million in the fourth quarter of 2007, an increase of $19.7 million or 11% over the prior year quarter. $11 million of this increase is related to rate growth with the balance attributed to acquisitions.

Looking at average rate per unit, excluding our December acquisitions, our average rate per unit for the fourth quarter of 2008 compared to the fourth quarter of 2007 increased 6% to $3498 from $3300, a level in line with our expectations. On a sequential quarter basis, our average rate per unit, again, exclusive of our December acquisitions, increased 1.4% from $3449 in the third quarter. The average rate for the month of December which was inclusive of the new acquisitions, was approximately $3620.

Average occupancy for the fourth quarter was 86.4%, which was essentially flat with the third quarter. Same-store occupancy was down 50 basis points from the fourth quarter of 2007. We believe the sequential quarter stability in our occupancy in the current economic climate speaks to the effectiveness of the programs and initiatives we implemented since last year as well as a need driven demand for assisted living in Alzheimer's business.

Outside of the impact of our acquisitions, we experienced only 3% growth in our operating expenses, primarily due to the beneficial of cost adjustments of our self-insured programs, professional liability, and workers’ compensation. Excluding the beneficial impact of these adjustments in the quarter, fourth quarter margins in 2008 improve by 40 basis points to 35.9% from 35.5% in the fourth quarter 2007.

General and administrative expenses were $14.8 million in the fourth quarter of 2008 compared with $14.6 million in the fourth quarter of 2007. General and administrative expenses as a percent of total operated community revenues was 6.4% in the fourth quarter of 2008 compared to 7% for the fourth quarter of 2007.

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