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Emeritus Corporation (ESC)

Q4 2007 Earnings Call

March 17, 2008 5:00 pm ET


Brad Cohen -

Daniel R. Baty - Co-Founder, Chairman and Co-Chief Executive Officer

Raymond R. Brandstrom – Co-Founder

Granger Cobb - Co-Chief Executive Officer, President


Donald Hooker – UBS

Jerry Doctrow – Stifel Nicolaus

Stefan Mykytiuk – Pike Place Capital



Good afternoon ladies and gentlemen and welcome to the Emeritus Corporation fourth quarter 2007 earnings conference call. At this time, all 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 the questions.

I would like to also remind everyone that this conference is being recorded. And at this time, I would like to turn the conference over to Mr. Brad Cohen. Please go ahead sir.

Brad Cohen

Thank you very much, good afternoon. And thank you for joining us for the Emeritus Corporation 2007 fourth quarter and year end conference call. On the call with me today is Dan Baty, Chairman and Co-CEO of Emeritus, Granger Cobb, President and Co-CEO of Emeritus and Chief Financial Officer, Ray Brandstrom.

Before we begin today, I would like to remind everyone on the Safe Harbor statement 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 of the factors that could cause actual results to differ materially from those suggested in any forward-looking statements, we will refer you to Emeritus’ Form 10-K for fiscal year ended December 31st, 2006 and 2007 filed with the SEC. The company just filed its Form 10-K for the year ended December 31st, 2007.

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

Daniel R. Baty

Thank you, Brad Cohen. Emeritus is in the best position financially and operationally, and with this opportunity for growth than it has been since its founding 15 years ago. Currently, the company operates 287 facilities with 24,000 units in 37 states. The macro conditions continue to be favorable. Growing demand for assisted living and dementia care based on the increasing ageing population, which is the wealthiest segment of American population continues. Our residents are need driven so economic swings have little impact on their decisions. Events of 2007, provides the basis for our strong position. Highlights of these events are the merger acquisition with Summerville, which provided us with increased capacity of 81 facilities and more importantly an opportunity to totally revamp our operational management, which at this point in time has been fully integrated.

In addition, we have the fortuitous timing of our 320 million equity offering at the end of June. In addition, during ’07 we sharply increased to our own properties from 6% to 40% of total properties and with the NHP repurchase and others in the pipeline, we are confident of being over 60% owned by the end of 2008. Over all, we basically are just where, we thought we had been and our numbers are tracking our estimates at the time we had the offerings. At this time, I would like to introduce Ray Brandstrom.

Raymond R. Brandstrom

Thank you, Dan. Good afternoon everyone. I would like to begin by recapping the fourth quarter results, give an update on our balance sheet, an update on our expansion and development plans and finished by providing some initial 2008 financial guidance. As a reminder the Fourth Quarter ended December 31, 2007, was the first four quarter of operations for the combined companies given at the Summerville transaction closed on September 1st, 2007.

The press release to be issued today takes you through the quarterly and annual comparisons. So let me highlight a few key topics. Total revenue for the fourth quarter ended December 31, 2007 was $186.4 million up $48.4 million or 35% over the third quarter. This significant increase is primarily attributable to the Summerville acquisition. Average monthly revenue per units for the quarter was $3,289 up from September results. We ended the year at 88% occupancy though due to the timing of moving ins and move out. The average occupancy for the quarter was 87.4. Clearly operating expenses for the quarter were a $116.7 million with a reported community operating margin of 37%, however, in the quarter we had certain year-end adjustments of accrued expenses, some portion of which related to prior quarters or prior years. After adjusting for the portion of these true ups related to prior quarters or prior year’s community operating expenses would had been 120.7 million with an adjusted margin of 34.9%, which is flat compared to third quarter 2007.

General and administrative expenses reviewed at the percent of total operating revenue, which includes revenue from managed communities. For the quarter, general and administrative expense was 14.6 million or 7% of total operating revenue.

However, our general administrative expense in the fourth quarter included some non-reoccurring cost of approximately $750,000 primarily related to the wind down of Summerville’s corporate office, which results in the general and administrative expense as adjusted for the quarter of 6.7% of total operated revenue. Property related expense increased by 38.6 million, primarily as a result of the acquisition of Summerville and other communities acquired in 2007. On a cash basis, interest for the quarter was 12.3 million, while on a cash basis rent was 39.2 million. As supplemental information to our press release, we filed today, we provided a schedule of cash rents and interest for the first quarter of 2008 and a – version which provides changes to cash rent and interest, after the previously announced NHP transaction closes, which I'll recap when we get to the guidance segment of the call.

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