-- The Company produced a profit before expenses associated with its July repayment of its 19.5% mezzanine debt. This compares to a $10.5 million loss in the third quarter of 2003, excluding transaction gains of $20.4 million.
-- Reported a net loss of $6.9 million, after $7.0 million of expenses related to the refinancing transaction, which included $1.2 million of General and Administrative costs, $3.3 million of loan cost write-offs, and $2.5 million of taxes.
-- Free cash flow, positive for the fourth consecutive quarter, was $2.2 million after principal payments on long-term debt of $4.5 million, net of amounts paid as part of refinancing.
-- Revenue increased 11% over the third quarter of 2003 to $112 million.
-- The operating contribution from the Company's three business segments increased 24% over the third quarter of 2003 to $36 million.
-- Average overall occupancy rose to 93% from 91% for last year's third quarter with the Company's large retirement communities' ("Retirement Centers") exceeding 95%.
-- Retirement Centers' results were driven by a 4% average occupancy growth and a 5% increase in average monthly revenue per occupied unit.
-- The Free-standing assisted living communities' ("Free-standing AL's") results were driven by a 7% occupancy growth and an 8% increase in average monthly revenue per occupied unit.
-- As previously announced, the Company repaid in full its 19.5% mezzanine debt as part of a July 15, 2004 transaction.
Bill Sheriff, Chairman, President and CEO of American Retirement, commented, "While we reached a profitability milestone in the third quarter, the quarter was really marked by the heroic efforts of our associates and the durability of our buildings in Florida. Even with our 16 communities in Florida, we did not have to move out any residents, did not suffer any structural damage and we maintained services throughout the recent hurricanes. Our associates prepared well, worked long days, made personal sacrifices and always put our residents first. We're proud of our associates' response, which served our residents well and maintained an operating business in a very difficult environment."
"Excluding the expenses related to the July refinancing transaction, we were profitable in this quarter. Underlying this success is the continued increase in the performance of our communities due to the attractiveness of our product offerings and strong execution by our organization. Our total portfolio occupancy was at 94% at the end of the quarter with good opportunities to increase that further in both Free-standing AL's and Retirement Centers. We continue to see good growth in revenue per unit with significant contributions from our ancillary services businesses, including therapy and companion services, and assisted living pricing. Additionally, we repaid our expensive 19.5% debt in July, and that transaction will have a considerable and ongoing positive impact on our financial results," Mr. Sheriff continued.
OPERATIONAL HIGHLIGHTS
The Company operates in three business segments: Retirement Centers, Free-standing AL's and Management Services. The Retirement Centers include CCRCs (continuing care retirement centers), Entrance-Fee Communities ("EF Communities") and congregate living residences. The Retirement Centers are established communities with strong reputations within their respective markets. Free-standing AL's are smaller than Retirement Centers and provide assisted living and specialized care such as Alzheimer's and memory enhancement programs. The Management Services segment includes fees from management agreements for communities owned by others and reimbursed expenses.
Retirement Centers
The Company's 28 Retirement Centers produced strong increases in revenue and operating contribution for the third quarter of 2004 as follows:
Retirement Centers ($ in 000's):
Three Months Ended
--------------------
Sept. 30, Sept. 30, $ %
2004 2003 Change Change
---------- --------- -------- --------
Community Revenue 86,526 79,307 7,219 9.1%
Community Operating
Contribution(1) 28,358 23,893 4,465 18.7%
Operating contribution margin 32.8% 30.1% 2.7 pts 9.0%
(1) The Company evaluates the performance of its business segments,
primarily, based upon their operating contributions, which the
Company defines as revenue from the segment less operating
expenses associated with that segment.
The Retirement Centers continued to produce strong revenue per unit gains while increasing occupancy from the solid levels at which they ended the second quarter. This led to a 19% increase in operating contribution for the Retirement Center segment for the third quarter versus the prior year's third quarter. The number of occupied units increased 1%, with ending occupancy increasing from 94% to 95% versus the third quarter of 2003. The Retirement Centers ended the quarter with 97% occupancy in independent living, 95% in assisted living and 90% in skilled nursing. Average monthly revenue per occupied unit increased 5% during the quarter to $3,430 due to increases in monthly service fees and per diem rates in skilled nursing, turnover of residents (the "mark to market" effect of reselling or reletting units at higher current rates) and increased ancillary services, such as therapy.
The operating contribution for Retirement Centers exceeded $28 million in the third quarter of 2004, a 33% margin. This was a $4.5 million increase or 19% increase over the prior year's third quarter. The incremental operating margin on the third quarter's revenue increase was 62%.
The third quarter was in line with the year-to-date results with revenue increasing by $26 million or 11% and operating contribution by $13 million or 18% for the nine months ended September 30, 2004 versus the first nine months of 2003.
Six of the Company's consolidated Retirement Centers are EF Communities that collect entrance fees upon a resident's initial occupancy of a unit. In the third quarter of 2004, the Company sold 79 entry-fee units at these EF Communities, producing $11.9 million of gross proceeds or $8.6 million after refunds to previous residents.
Free-standing AL's
Revenue from Free-standing AL's increased 16% to $24.6 million in 2004's third quarter compared with last year's third quarter revenue of $21.2 million. Occupancy for the Free-standing AL portfolio reached 88% at the end of the 2004 third quarter, up from 82% a year ago.
Free-standing AL ($ in 000's):
Three Months Ended
-------------------
Sept. 30, Sept. 30, $ %
2004 2003 Change Change
--------- --------- -------- --------
Revenues 24,563 21,227 3,336 15.7%
Community Operating
Contribution(1) 6,906 4,638 2,268 48.9%
Operating contribution margin 28.1% 21.8% 6.3 pts 28.9%
% Occupancy 88% 82% 6.0 pts 7.3%
Note: Includes results of 31 Free-standing AL's and excludes two
Free-standing AL's held in joint ventures
The Free-standing AL portfolio produced a solid year-over-year increase in average monthly revenue per occupied unit of 8%, while continuing to make progress on occupancy levels. The quarter over quarter average occupied units grew by 7%, while the average monthly revenue per unit increased to $3,304. The monthly revenue per occupied unit in September 2004 was $3,316 per month, an 8% increase from $3,070 per month in September 2003. The revenue per occupied unit increase was due to rate increases, reduced discounts and promotional allowances, increased care services and turnover of residents (the "mark to market" effect of reletting units at higher current rates). The increased use of ancillary services, particularly therapy services, also contributed significantly to the revenue and operating contribution increase for this segment.
The operating contribution from the Free-standing AL's increased 49%, or $2.3 million, in the third quarter of 2004 from the third quarter of 2003. As in prior periods, the Free-standing AL's added revenue with less proportional increase in expenses and produced an incremental operating margin of 68% on incremental revenue. The Free-standing AL segment continues to demonstrate the high incremental margin that results from increasing revenue in a portfolio that is currently 88% occupied.
For the nine months ended September 30, 2004, revenue increased by $9 million or 14% and operating contribution by $7 million or 61% versus the first nine months of 2003.
Management Services
The Company's management services business segment included management contracts on five Retirement Centers and two Free-standing AL's, with an aggregate capacity of 1,350 units. Management Services brought in operating contribution of $.5 million in third-quarter 2004, a 48% increase versus the same prior-year period.
Conference Call Information
American Retirement Corporation will hold a conference call with Bill Sheriff, Chairman, President and Chief Executive Officer, and Bryan Richardson, Chief Financial Officer, to discuss the Company's 2004 third-quarter financial results. The call will be held on Thursday, November, 4, 2004 at 2:00 p.m. ET and parties may participate by either calling (877) 252-6354 or through the Company's website at www.arclp.com. Click on the broadcast icon to listen to the earnings call - Windows Media Player(TM) is required to listen to this webcast. In addition, the call will be archived on the Company's website until the next regularly scheduled earnings conference call. If any material information is disclosed on the conference call that has not been previously disclosed publicly, that information will also be available at the Investor Relations portion of the Company's web site.
Additional Filings
The Company's results are to be described in greater detail in the Company's Form 10-Q, which will be filed with the Securities and Exchange Commission. The Company also will file on or about November 4th a Form 8-K with the Securities and Exchange Commission, which includes supplemental information relating to the Company's third quarter 2004 results. These filings will also be available through the Investor Relations section of the Company's website - www.arclp.com.
COMPANY PROFILE
American Retirement Corporation is a national senior living and health care services provider offering a broad range of care and services to seniors, including independent living, assisted living, skilled nursing and Alzheimer's care. Established in 1978, the Company believes that it is a leader in the operations and management of senior living communities, including independent living communities, continuing care retirement communities, Free-standing AL's, and the development of specialized care programs for residents with Alzheimer's and other forms of dementia. The Company's operating philosophy is to enhance the lives of seniors by striving to provide the highest quality of care and services in well-operated communities designed to improve and protect the quality of life, independence, personal freedom, privacy, spirit, and dignity of its residents. The Company currently operates 66 senior living communities in 14 states, with an aggregate unit capacity of approximately 13,000 units and resident capacity of approximately 14,600. The Company owns 15 communities, leases 45 communities, and manages six communities pursuant to management agreements. Approximately 85 percent of the Company's revenues come from private pay sources.
SAFE HARBOR STATEMENT
Statements contained in this press release and statements made by or on behalf of American Retirement Corporation relating hereto may be deemed to constitute forward-looking information made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Those forward-looking statements include all statements that are not historical statements of fact and those regarding the intent, belief or expectations of the Company or its management, including, without limitation, all statements regarding the Company's future operating and financial expectations and its strategy to improve financial and operating results. These forward-looking statements may be affected by certain risks and uncertainties, including without limitation the following: (i) the risk associated with the Company's financial condition and significant leverage, (ii) the Company's ability to sell its entry-fee units and to increase occupancy at the Company's communities (especially its Free-standing AL's), (iii) the Company's ability to improve the Company's results of operations, increase cash flow and reduce expenses, (iv) the risks associated with adverse market conditions of the senior housing industry and the United States economy in general, (v) the risk that the Company is unable to obtain liability insurance in the future or that the costs thereof (including deductibles) will be prohibitive, (vi) the Company's ability to obtain new financing or extend and/or modify existing debt and (vii) the risk factors described in the Company's Annual Report on Form 10-K for the year ended December 31, 2003 under the caption "Risk Factors" and in the Company's other filings with the Securities and Exchange Commission. In light of the significant uncertainties inherent in the forward-looking statements included herein, the Company's actual results could differ materially from such forward-looking statements. The Company does not undertake any obligation to publicly release any revisions to any forward-looking statements contained herein to reflect events and circumstances occurring after the date hereof or to reflect the occurrence of unanticipated events.
AMERICAN RETIREMENT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(in thousands, except per share data)
Three months ended
September 30, 2004 Increase (Decrease)
---------------------------------------
2004 2003 $ %
-------- --------- -------- ---------
Revenues:
Resident and health care $111,089 $ 100,534 $ 10,555 10.5%
Management services 500 338 162 47.9%
Reimbursed expenses 460 529 (69) -13.0%
-------- --------- -------- ---------
Total revenues 112,049 101,401 10,648 10.5%
Operating expenses:
Community operating
expenses 75,825 72,003 3,822 5.3%
General and administrative 8,400 6,351 2,049 32.3%
Lease expense 15,382 12,058 3,324 27.6%
Depreciation and
amortization 8,488 6,918 1,570 22.7%
Amortization of leasehold
acquisition costs 735 597 138 23.1%
Reimbursed expenses 460 529 (69) -13.0%
-------- --------- -------- ---------
Total operating expenses 109,290 98,456 10,834 11.0%
-------- --------- -------- ---------
Operating income 2,759 2,945 (186) -6.3%
Other income (expense):
Interest expense (8,400) (14,978) 6,578 43.9%
Interest income 718 636 82 12.9%
Gain (loss) on sale of
assets (48) 23,149 (23,197) -100.2%
Other 258 (255) 513 201.2%
-------- --------- -------- ---------
Other expense, net (7,472) 8,552 16,024 187.4%
-------- --------- -------- ---------
Loss from continuing
operations before income
taxes, and minority
interest (4,713) 11,497 (16,210) -141.0%
Income tax expense 2,501 1,361 1,140 83.8%
-------- --------- -------- ---------
Loss from continuing
operations before
minority interest (7,214) 10,136 (17,350) -171.2%
Minority interest in earnings
of consolidated
subsidiaries, net of tax 270 (256) 526 205.5%
-------- --------- -------- ---------
Net loss $ (6,944) $ 9,880 $(16,824) -170.3%
======== ========= ======== =========
Basic loss per share $ (0.28) $ 0.53
======== =========
Diluted loss per share $ (0.28) $ 0.41
======== =========
Weighted average shares used
for basic (loss) earnings
per share data 24,665 18,739
Weighted average shares used
for diluted (loss) earnings
per share data 24,665 24,578
---------------------------------------------------------------------
September December
30, 2004 31, 2003
-------- ---------
Selected Balance Sheet Data:
Cash and cash equivalents $ 35,487 $ 17,192
Restricted cash, including
current portion 49,367 43,601
Working capital 19,040 8,603
Land, buildings and
equipment, net 512,854 533,145
Total assets 769,578 774,283
Long-term debt, including
current portion 352,486 371,535
Refundable portion of
entrance fees 79,598 72,980
Shareholders' equity (391) 807
AMERICAN RETIREMENT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(in thousands, except per share data)
Nine months ended
September 30, Increase (Decrease)
--------------------------------------
2004 2003 $ %
-------- -------- -------- ---------
Revenues:
Resident and health care $328,150 $293,220 $ 34,930 11.9%
Management services 1,439 1,171 268 22.9%
Reimbursed expenses 1,752 1,830 (78) -4.3%
-------- -------- -------- ---------
Total revenues 331,341 296,221 35,120 11.9%
Operating expenses:
Community operating expenses 223,742 209,147 14,595 7.0%
General and administrative 21,102 19,169 1,933 10.1%
Lease expense 45,654 32,558 13,096 40.2%
Depreciation and amortization 21,948 20,718 1,230 5.9%
Amortization of leasehold
acquisition costs 2,181 1,645 536 32.6%
Reimbursed expenses 1,752 1,830 (78) -4.3%
-------- -------- -------- ---------
Total operating expenses 316,379 285,067 31,312 11.0%
-------- -------- -------- ---------
Operating income (loss) 14,962 11,154 3,808 34.1%
Other income (expense):
Interest expense (27,033) (43,885) 16,852 38.4%
Interest income 1,989 2,225 (236) -10.6%
Gain (loss) on sale of assets 63 23,170 (23,107) -99.7%
Other 5 21 (16) -76.2%
-------- -------- -------- ---------
Other expense, net (24,976) (18,469) (6,507) 35.2%
-------- -------- -------- ---------
Loss from continuing
operations before income
taxes and minority interest (10,014) (7,315) (2,699) -36.9%
Income tax expense 2,721 1,555 1,166 75.0%
-------- -------- -------- ---------
Loss from continuing
operations before minority
interest (12,735) (8,870) (3,865) -43.6%
Minority interest in earnings
of consolidated
subsidiaries, net of tax (1,555) (1,704) 149 8.7%
-------- -------- -------- ---------
Net loss $(14,290) $(10,574) $ (3,716) -35.1%
======== ======== ======== =========
Basic and diluted loss per
share $ (0.61) $ (0.59)
======== ========
Weighted average shares used
for basic and diluted loss
per share data 23,404 18,049
======== ========
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