<PAGE> 1
Exhibit (c)(2)
PRESENTATION TO THE SPECIAL COMMITTEE
OF THE BOARD OF DIRECTORS
[BROOKDALE LIVING COMMUNITIES, INC. LOGO]
MAY 8, 2000
<PAGE> 2
TABLE OF CONTENTS
1. Executive Summary
2. The Special Committee Process
3. The Company and the Assisted Living Industry
4. Conclusion
5. Appendix: Recent Merrill Lynch Research
[MERRILL LYNCH LOGO]
<PAGE> 3
1
<PAGE> 4
EXECUTIVE SUMMARY
<PAGE> 5
EXECUTIVE SUMMARY
THE MERRILL LYNCH TEAM
REAL ESTATE INVESTMENT BANKING MERGERS & ACQUISITIONS
JOHN BRADY ALAN HARTMAN
Managing Director Managing Director - Healthcare M&A
CHRIS ALLEN PHILIP MINTZ
Associate Vice President - Real Estate M&A
JAN POSTMA SAM SIEGAL
Analyst Analyst
[BROOKDALE LIVING COMMUNITIES, INC. LOGO]
REAL ESTATE VALUATION & APPRAISAL RESEARCH
ED WELCH DOUG SIMPSON
Director Vice President
ALAN ROBSON A.J. RICE
Director First Vice President
JOAN IMBRO
Vice President
[MERRILL LYNCH LOGO] 1
<PAGE> 6
EXECUTIVE SUMMARY
OVERVIEW
o Merrill Lynch would appreciate the opportunity to advise and assist
the special committee (the "Special Committee") of Brookdale's Board
of Directors with respect to events arising from the recent Fortress
equity investment
* The Prime Group agreed to sell 3.9 million shares, or
approximately 39.8% of Brookdale's outstanding common shares(1),
to Fortress (the "Fortress Purchase") for $15.00 per share on
April 20, 2000
* Upon closing of the Fortress Purchase, Michael Reschke will
resign from the Board of Directors and Fortress will receive two
designees
* Fortress is subject to a standstill agreement through May 14,
2002 which prohibits them from acquiring additional shares of
Brookdale, except in the case of an all cash tender for all of
the remaining shares of common stock at no less than $15.00 per
share
- Cannot commence such a tender offer prior to July 5th, 2000
- Fortress was approved as an "interested shareholder" for
purposes of Delaware 203
o The Special Committee has hired Gardner, Carton & Douglas as outside
counsel and now seeks to hire a financial advisor to evaluate a
potential tender offer from Fortress and otherwise consider a broad
range of strategic alternatives
----------
(1) Based on the 8-K dated April 21, 2000. The Company also has $100.0 million
of convertible debt outstanding, with a conversion price of $18.25. The
debt is held by Capital Z.
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<PAGE> 7
EXECUTIVE SUMMARY
Overview (Continued)
o In order to properly assess the adequacy of any potential proposal, the
Special Committee should understand all of the legal and financial
options available to it
* Central to this understanding will be the development of a 5 year
financial model, including a detailed valuation undertaken by the
financial advisor based on the following principal methodologies
- Discounted Cash Flow - Public Market Comparables
- Net Asset Valuation - Affordability Analysis
- Acquisition Comparables
[MERRILL LYNCH LOGO] 3
<PAGE> 8
EXECUTIVE SUMMARY
Considerations
o At the completion of the legal and financial strategic advisory review,
the Special Committee will be appropriately positioned to weigh and
consider available options
o If Fortress does commence a cash tender for the remaining shares(1), the
Company would have various options, including, but not limited to
* Accept and recommend the transaction
* Negotiate with Fortress for additional consideration
* Seek third party indications of interest
* Recapitalize the Company
* Reject the Fortress offer
-------
(1) While Fortress would not need Board approval, it is likely that they would
solicit approval and request that the Special Committee obtain a fairness
opinion from a financial advisor.
[MERRILL LYNCH LOGO] 4
<PAGE> 9
2
<PAGE> 10
THE SPECIAL COMMITTEE PROCESS
<PAGE> 11
THE SPECIAL COMMITTEE PROCESS
o After the designation of the Special Committee and the hiring of outside
legal counsel and a financial advisor, the Special Committee and its
advisors will
* Undertake a strategic review of the Company's financial prospects
* Formulate and define a process with the goal being to ultimately
maximize value to the Company's shareholders
o A legal review will be conducted by outside legal counsel
* Articles of Incorporation and Bylaws
* Corporate governance guidelines
* Structural defenses in both the Articles of Incorporation and Bylaws,
to the extent possible, as well as Delaware corporate law
o A financial analysis will be conducted by the investment banking team
* Conduct extensive due diligence on the Company's assets
* Prepare a detailed valuation model of the Company
* Consider the terms and conditions of an anticipated cash tender and
review and analyze a range of strategic alternatives and their
financial implications to the Company
[MERRILL LYNCH LOGO] 5
<PAGE> 12
THE SPECIAL COMMITTEE PROCESS
o Ultimately, with both legal and financial assistance, the Special
Committee will decide based upon fiduciary obligations what course of
action is in the best interest of the shareholders
o It is important that the Special Committee utilize a financial advisor
with a broad range of expertise in
* Special Committee Representation
* The Real Estate Sector
* The Assisted Living Sector
* Opportunity Funds / Institutional Investors
[MERRILL LYNCH LOGO] 6
<PAGE> 13
THE SPECIAL COMMITTEE PROCESS
Merrill Lynch Experience
o Merrill Lynch has extensive and relevant special committee advisory
experience, including(1)
* Sun International Hotels * WestPoint Stevens
* Ventas * Tower Realty
* Prison Realty Trust * Ambassador Apartments
* Hillhaven
o Merrill Lynch also has extensive assisted living experience
* HCR Manor Care/Alterra Healthcare asset sale and strategic alliance
* Health Care Property Investors/AHP
* Equity Research (A.J. Rice -- Institutional Investor Ranked #1)
* Dedicated in-house appraisers with significant experience conducting
net asset valuations of health care assets
----------
(1) In fact, members of the Brookdale team (the "Team") have personally worked
on the Sun International Hotels, Ventas, Prison Realty Trust, Tower Realty,
Ambassador Apartments, and Hillhaven advisory assignments.
[MERRILL LYNCH LOGO] 7
<PAGE> 14
THE SPECIAL COMMITTEE PROCESS
Selected Merrill Lynch Special Committee Advisory Situations
<TABLE>
<CAPTION>
TOTAL
ANNOUNCEMENT EFFECTIVE TRANSACTION
DATE DATE CLIENT NAME DESCRIPTION VALUE (mm)
------------ --------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
02/11/00 Pending Sun International Hotels Advised the special committee in management buyout $ 900.0
12/27/99 Pending Prison Realty Trust Advised the special committee on restructuring the Company 1,500.0
03/12/99 Pending CNL American Properties Fund Advised the special committee on restructuring the Company 733.0
03/16/99 Pending Ventas Advised the special committee in the restructuring of NA
$1.0 billion of bank debt and in negotiations with
Vencor, the Company's principal tenant
12/10/98 Withdrawn Oakwood Homes Corporation Represented the special committee in the sale of the 922.0
Company
11/05/98 12/16/98 Citizens Corp. Provided a fairness opinion to the special committee 195.9
11/02/98 Pending Smart & Final Inc. Advised the special committee on restructuring the Company NA
10/09/98 Pending Oak Technology Inc. Represented the special committee in management buyout 180.0
09/25/98 03/31/99 Bruckmann Rossier & Sherrill Represented management in management buyout 350.0
09/15/98 Pending US Freightways Represented the special committee in management buyout NA
09/10/98 07/08/99 St. John Knits Represented the special committee in the sale of the Company 520.0
08/12/98 05/24/99 Tower Realty Trust Advised the special committee on sale to Reckson Associates 762.8
08/10/98 03/19/99 Storage Trust Realty Advised the special committee in unsolicited proposal from 610.0
Public Storage Inc.
07/14/98 11/02/98 Mycogen Corp. Advised the special committee on sale of 30% of the Company 322.0
to Dow
02/16/98 06/30/99 Dexter Corp. Advised the special committee in the purchase of Life 420.0
Technology
12/30/97 11/22/99 Kaiser Ventures Inc. Represented the special committee in the exclusive sale NA
of the Company
11/09/97 06/09/98 American Radio Provided a fairness opinion to the special committee in the 2,600.0
spin off of Tower
10/23/97 03/30/98 Nu Skin Asia Pacific Represented the special committee in the purchase of 250.0
Nu Skin International
08/26/97 01/12/98 Texas Gas Corp. Provided a fairness opinion to the special committee on the 2,350.0
exclusive sale of the Company
04/15/97 01/05/98 Wyndham Hotels Advised the special committee in the sale of the Company 1,100.0
to Patriot American
01/30/97 10/19/98 SPS Transaction Services Inc. Provided a fairness opinion to the special committee on NA
the sale of 28% of the Company to Dean Witter
01/10/97 06/13/97 Crescent Real Estate Equities Provided a fairness opinion to the special committee in the 400.0
acquisition of facilities from Magellan
01/10/97 02/27/98 Xpedite Systems, Inc. Represented the special committee in the buyout offer from 235.0
a management led group
</TABLE>
[MERRILL LYNCH LOGO] 8
<PAGE> 15
3
<PAGE> 16
THE COMPANY AND THE ASSISTED LIVING INDUSTRY
<PAGE> 17
THE COMPANY AND THE ASSISTED LIVING INDUSTRY
Current Valuations
o Equity values in the assisted living sector continue to suffer due to
concerns about facility fill rates, capital availability and cost,
accounting issues, high leverage, and potential regulatory scrutiny
* The average assisted living stock has declined 27.9% over the
past 12 months, while the S&P 500 rose 6.3%
o The sell-off of assisted living stocks has been sparked by several
factors
* Alterra Healthcare, Sunrise Assisted Living, and American
Retirement Corp. significantly missed quarterly earnings due to
slower than expected residence fill-up to 15-18 months (from an
average of 9-13 months), which fueled concern about development
pipelines and the ability to maintain fee based income
* Renewed scrutiny over the use of joint ventures and other
financing techniques to keep start-up losses from adversely
impacting reported earnings
* Reduced access to traditional lending sources, such as REITs,
commercial banks, and private development partners
o In response to the dramatic shift in the market's perception of
assisted living stocks, several companies have announced that they are
exploring new strategic directions
* In October 1999, American Retirement announced a shift in
strategy from developments to acquisitions
* In March, Sunrise Assisted Living announced a new corporate
structure designed to better align key management strengths with
operational responsibilities
[MERRILL LYNCH LOGO] 9
<PAGE> 18
THE COMPANY AND THE ASSISTED LIVING INDUSTRY
Overview
(Dollars in Millions, Except Per Share Data)
FINANCIAL DATA(1)
<TABLE>
<S> <C>
Current Share Price $ 12.88
52 Week High $ 15.75
52 Week Low $ 10.38
Shares Outstanding 9.9
--------
Total Equity Capitalization $ 126.8
Plus: Secured Debt $ 99.1
Plus: Convertible Debt $ 100.00
--------
Total Market Capitalization $ 325.9
Plus: 8.0 x Leases $ 208.1
--------
Adjusted Market Capitalization $ 533.9
========
</TABLE>
TRADING MULTIPLES(2)
<TABLE>
<CAPTION>
YEAR EBITDAR MULTIPLE EBITDA MULTIPLE P/E MULTIPLE
---- ---------------- --------------- ------------
<S> <C> <C> <C>
2000E 9.7x 12.0x 11.0x
2001E 8.9x 10.4x 9.2x
PROJECTED FINANCIAL RESULTS EBITDAR EBITDA EPS
--------------------------- ------- ------ ------
2000E $ 55.3 $ 27.1 $ 1.17
2001E $ 59.9 $ 31.4 $ 1.40
CONSENSUS 5 YEAR GROWTH RATE 24.5%
</TABLE>
----------
(1) Based on 10-K dated 12/31/99 except for shares outstanding, which is based
on the 8-K dated April 21, 2000.
(2) EPS based on First Call consensus estimates dated May 5, 2000. EBITDA
estimates from Merrill Lynch Equity Research dated March 28, 2000.
[MERRILL LYNCH LOGO] 10
<PAGE> 19
THE COMPANY AND THE ASSISTED LIVING INDUSTRY
Trading History
[CHART]
Brookdale Living Communities
[MERRILL LYNCH LOGO] 11
<PAGE> 20
THE COMPANY AND THE ASSISTED LIVING INDUSTRY
ANALYSIS OF TRADING VOLUME FROM 05/05/99 TO 05/05/00
PERCENT OF VOLUME WHICH TRADED IN STOCK PRICE RANGE
[CHART]
<TABLE>
<CAPTION>
SHARES TRADED PRICE PER SHARE PERCENT
------------- --------------- -------
<S> <C> <C>
$10.00-$11.00 14.2%
$11.00-$12.00 9.1%
$12.00-$13.00 26.8%
$13.00-$14.00 26.1%
$14.00-$15.00 23.2%
$15.00-$16.00 0.6%
</TABLE>
PERCENT OF VOLUME WHICH TRADED BELOW STOCK PRICE RANGE
[CHART]
<TABLE>
<CAPTION>
CUMULATIVE
SHARES TRADED PRICE PER SHARE PERCENT
------------- --------------- -------
<S> <C> <C>
$11.00 14.2%
$12.00 23.3%
$13.00 50.1%
$14.00 76.3%
$15.00 99.4%
$16.00 100.0%
</TABLE>
[MERRILL LYNCH LOGO] 12
<PAGE> 21
THE COMPANY AND THE ASSISTED LIVING INDUSTRY
Relative Stock Price Performance Over Two Year Period*
[CHART]
----------
* Assisted Living Composite includes ACR, ALI, CSU, ESC, SNRZ, and SRS.
[MERRILL LYNCH LOGO] 13
<PAGE> 22
THE COMPANY AND THE ASSISTED LIVING INDUSTRY
Comparison of Selected Public Companies
Ranked by 2000E EBITDAR Multiple
($ in thousands, except per share data)
<TABLE>
<CAPTION>
Equity Total Adjusted Debt + Pref(4)/ 2000E
Price as of Market Market Market Total Market EBITDAR
Company 05/05/00 Cap(1) Cap(2) Cap(3) Capitalization Multiple(5)
------- ------------ ------------ ------------ ------------ -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
American Retirement (10) $ 7.56 $ 129,662 $ 609,036 $ 720,012 78.7% 12.1x
Sunrise Assisted Living $ 16.75 $ 367,476 $ 1,088,167 $ 1,179,015 65.9% 12.0x
Emeritus $ 4.00 $ 40,266 $ 272,765 $ 460,765 84.9% 11.1x
Alterra Healthcare $ 3.00 $ 66,300 $ 900,639 $ 1,299,263 92.2% 10.3x
Capital Senior Living $ 2.50 $ 49,293 $ 154,286 $ 154,286 60.7% 5.8x
ARV Assisted Living $ 1.19 $ 20,733 $ 136,464 $ 398,736 84.8% NA
------------ ------------ ------------ ------------ ------------ ------------
MAXIMUM $ 367,476 $ 1,088,167 $ 1,299,263 92.2% 12.1x
MEAN $ 112,289 $ 526,893 $ 702,013 77.9% 10.2x
MINIMUM $ 20,733 $ 136,464 $ 154,286 60.7% 5.8x
============ ============ ============ ============ ============
Brookdale $ 12.88 $ 126,819 $ 325,884 $ 533,948 61.1% 9.7x
============ ============ ============ ============ ============ ============
<CAPTION>
Adjusted Adjusted
2000E 2000E 2000E 2000E 2001E
EBITDAR EBITDA EBITDA EPS EPS
Company Multiple(6) Multiple(7) Multiple(8) Multiple(9) Multiple(9)
------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
American Retirement (10) 15.0x 14.3x 19.6x 19.1x 13.9x
Sunrise Assisted Living 19.7x 12.6x 22.8x 25.7x 20.7x
Emeritus 13.3x 14.8x 23.7x NM NM
Alterra Healthcare 11.4x 16.9x 22.0x NM 14.3x
Capital Senior Living 9.0x 5.8x 9.0x 8.6x 7.1x
ARV Assisted Living NA NA NA NM 9.9x
------------ ------------ ------------ ------------ ------------
MAXIMUM 19.7x 16.9x 23.7x 25.7x 20.7x
MEAN 13.7x 12.9x 19.4x 17.8x 13.2x
MINIMUM 9.0x 5.8x 9.0x 8.6x 7.1x
============ ============ ============ ============ ============
Brookdale 11.2x 12.0x 16.8x 11.0x 9.2x
============ ============ ============ ============ ============
</TABLE>
----------
NM = Not Meaningful
Source: Financial statements ending December 31, 1999 except for Brookdale's
shares outstanding, which is based on the 8-K dated April 21, 2000.
(1) Equity market cap includes in-the-money converts.
(2) Total market cap represents equity market cap plus debt plus minority
interest plus preferred at liquidation value.
(3) Adjusted market cap represents total market cap plus 8x rents.
(4) Preferred stock valued at liquidation value.
(5) Adjusted market cap / 2000E EBITDAR. EBITDAR estimates based on latest
research.
(6) Adjusted market cap / 2000E EBITDAR net of fee and other income. EBITDAR
estimates based on latest research.
(7) Total market cap / 2000E EBITDA. EBITDA estimates based on latest research.
(8) Total market cap / 2000E EBITDA net of fee and other income. EBITDA
estimates based on latest research.
(9) First Call consensus estimates.
(10) Debt for ACR includes refundable portion of life estate fees.
[MERRILL LYNCH LOGO] 14
<PAGE> 23
THE COMPANY AND THE ASSISTED LIVING INDUSTRY
Implied Premiums and Multiples Under Various Tender Offer Assumptions
<TABLE>
<CAPTION>
OFFER PRICE
-------------------------------------------------------------------------------------
$15.00 $16.00 $17.00 $18.00 $19.00 $20.00
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Equity Value (1) $ 147,750 $ 157,600 $ 167,450 $ 177,300 $ 291,260 $ 306,589
Total Market Value(2) $ 346,815 $ 356,665 $ 366,515 $ 376,365 $ 390,325 $ 405,654
Adjusted Market Value(3) $ 554,879 $ 564,729 $ 574,579 $ 584,429 $ 598,389 $ 613,718
PREMIUM TO:
Current Price 16.5% 24.3% 32.0% 39.8% 47.6% 55.3%
52 Week High (4.8)% 1.6% 7.9% 14.3% 20.6% 27.0%
52 Week Low 44.6% 54.2% 63.9% 73.5% 83.1% 92.8%
3 Month Average 21.8% 29.9% 38.1% 46.2% 54.3% 62.4%
IMPLIED VALUE AS A MULTIPLE OF:
2000E EBITDAR(4) 10.0x 10.2x 10.4x 10.6x 10.8x 11.1x
Adjusted 2000E EBITDAR(5) 11.7x 11.9x 12.1x 12.3x 12.6x 12.9x
2000E EBITDA(6) 12.8x 13.2x 13.5x 13.9x 14.4x 15.0x
Adjusted 2000E EBITDA(7) 17.9x 18.4x 18.9x 19.4x 20.1x 20.9x
2000E EPS(8) 12.8x 13.7x 14.5x 15.4x 16.2x 17.1x
</TABLE>
----------
NM = Not Meaningful, Outliers excluded from summary.
Source: Financial statements ending December 31, 1999 except for Brookdale's
shares outstanding, which is based on the 8-K dated April 21, 2000.
(1) Equity market cap includes in-the-money converts.
(2) Total market cap represents equity market cap plus debt plus minority
interest plus preferred at liquidation value.
(3) Adjusted market cap represents total market cap plus 8x rents.
(4) Adjusted market cap / 2000E EBITDAR. EBITDAR estimates based on latest
research.
(5) Adjusted market cap / 2000E EBITDAR net of fee and other income. EBITDAR
estimates based on latest research.
(6) Total market cap / 2000E EBITDA. EBITDA estimates based on latest research.
(7) Total market cap / 2000E EBITDA net of fee and other income. EBITDA
estimates based on latest research.
(8) First Call consensus estimates.
[MERRILL LYNCH LOGO] 15
<PAGE> 24
THE COMPANY AND THE ASSISTED LIVING INDUSTRY
List of Potential Investors
<TABLE>
<CAPTION>
FINANCIAL INVESTORS PUBLIC STRATEGIC INVESTORS PRIVATE STRATEGIC INVESTORS
<S> <C> <C>
o The Hampstead Group o Sunrise Assisted Living o Classic Residence by Hyatt
(Pritzker)
o Oak Hill Partners o American Retirement Corp.
o IPC Advisors/Central Park
o Blackstone Group o Emeritus (or affiliates) Lodges (Reichmann)
o Madison Dearborn Partners o Marriott International o Holiday Retirement Corp. (or
affiliates)
o Warburg, Pincus o Crestline
o Senior Campus Living
o Code Hennessy & Simmons o ARV Assisted Living
o Life Care Senior Corp.
o Walton Street Capital o Capital Senior Living Corp.
o Life Trust
o Whitehall Fund o Forest City Enterprises
o Morgan Stanley Group Holdings
o AEW Capital
o Carlyle Group
o Westbrook Partners
o Joseph, Littlejohn & Levy
o Apollo Real Estate Advisors
o Fremont Realty Capital
</TABLE>
[MERRILL LYNCH LOGO] 16
<PAGE> 25
THE COMPANY AND THE ASSISTED LIVING INDUSTRY
SELECTED STRATEGIC INVESTMENTS IN ASSISTED LIVING COMPANIES
<TABLE>
<CAPTION>
DATE OF
ANNOUNCEMENT FINANCIAL INVESTOR PUBLIC COMPANY INVESTMENT
------------ ------------------ -------------- ----------
<S> <C> <C> <C>
Apr-00 Fortress Investment Fund Brookdale Living Communities 3.9 million shares, 39.8% stake.
(BLCI)
Apr-00 Daniel Baty (Emeritus) Alterra Healthcare (ALI) $138.0 million of convertible debt, with a
William Colson (Holiday Retirement) conversion price of $4.00 and a 9.75% semi-
annual payment-in-kind (PIK) coupon.
Jan-00 AR Investment Ltd. (Reichman) Alterra Healthcare (ALI) 1.8 million shares of common, 8.0% stake
(approximately $14 million).
Dec-99 RCW Holdings (Reichman) Sunrise-Assisted Living (SNRZ) 1.4 million shares of common, 6.7% stake
(approximately $13 million).
Nov-99 Walton Street Capital American Retirement Corp. (ACR) $10 million common stock, 9.6% stake.
Oct-99 IPC Advisors (Reichmann Family) Balanced Care Corporation (BAL) $21 million, 49% stake -- $4.1 million
convertible preferred stock (converts to 3.3
million shares), $1.25/share offer for 13.4
million common shares.
May-99 Capital Z Partners Brookdale Living Communities $100 million, 5.5% convertible subordinated
(BLCI) notes ($18.25 strike price, representing 30%
premium to the current stock price).
Jan-98 Lone Star Opportunity Fund Greenbriar (GBR) $22 million, 6% preferred stock, Convertible
into 1.25 million shares. Also providing a
$90 million lease line of credit.
May-97 Whitehall Street Real Estate LP VII Integrated Living Communities $11.50 per share cash tender.
(affiliate of Goldman, Sachs & Co.) (ILCC)
</TABLE>
[MERRILL LYNCH LOGO] 17
<PAGE> 26
4
<PAGE> 27
CONCLUSION
<PAGE> 28
CONCLUSION
o It is too early to predict what will happen as the process will be
extremely fluid once the Fortress Purchase closes. However,
* Merrill Lynch would be prepared to immediately begin to understand
and evaluate the Company's financial position
* The Team is extremely excited about the opportunity to work on
behalf of Brookdale's Special Committee and will dedicate all
resources necessary to assist the Special Committee in exercising
its fiduciary responsibilities
[MERRILL LYNCH LOGO] 18
<PAGE> 29
INDEX
<PAGE> 30
[MERRILL LYNCH LOGO] BULLETIN UNITED STATES
LONG-TERM CARE
25 April 2000
BROOKDALE LIVING
Doug Simpson COMMUNITIES INC.
Vice President
(1) 212 449-9406 SUBSTANTIAL COMPANY STAKE CHANGES HANDS ACCUMULATE*
A.J. Rice
First Vice President
(1) 212 449-3200 REASON FOR REPORT: Company Update LONG TERM
ACCUMULATE
PRICE: $11 1/2
<TABLE>
<CAPTION>
ESTIMATES (DEC) 1999A 2000E 2001E
--------------- ----- ----- -----
<S> <C> <C> <C>
EPS: $0.92 $1.15 $1.35
P/E: 12.5x 10.0x 8.5x
EPS Change (YoY): 25.0% 17.4%
Consensus EPS: $1.21 $1.40
(First Call: 17-Apr-2000)
Q1 EPS (Mar): $0.24 $0.26
Cash Flow/Share: $1.49 $1.72 $2.04
Price/Cash Flow: 7.7x 6.7x 5.6x
Dividend Rate: Nil Nil Nil
Dividend Yield: Nil Nil Nil
</TABLE>
<TABLE>
<S> <C>
OPINION & FINANCIAL DATA
Investment Opinion: D-2-2-9
Mkt. Value / Shares Outstanding (mn): $138 / 12
Book Value/Share (Dec-1999): $8.32
Price/Book Ratio: 1.4x
ROE 2000E Average: 14.3%
LT Liability % of Capital: 65.9%
Est. 5 Year EPS Growth: 25.0%
STOCK DATA
52-Week Range: $15 3/4-$10 3/8
Symbol / Exchange: BLCI / OTC
Options: None
Institutional Ownership-Spectrum: 30.9%
Brokers Covering (First Call): 9
ML INDUSTRY WEIGHTINGS & RATINGS**
STRATEGY; WEIGHTING REL. TO MKT.:
Income: Underweight (07-Mar-1995)
Growth: Overweight (07-Mar-1995)
Income & Growth: Overweight (07-Mar-1995)
Capital Appreciation: Overweight (04-Feb-1998)
MARKET ANALYSIS; TECHNICAL RATING: Below Average (25-Jun-1998)
</TABLE>
*Intermediate term opinion last changed on 16-Sep-1999.
**The views expressed are those of the macro department and do not necessarily
coincide with those of the Fundamental analyst.
For full investment opinion definitions, see footnotes.
INVESTMENT HIGHLIGHTS:
o On April 21, Prime Group Inc. announced that it has agreed to sell 3.9
million shares of Brookdale common stock, which represents roughly 39.8% of
shares outstanding, to an affiliate of Fortress Investment Fund at $15 each
for a total of $58.8 million.
o In addition, Fortress agreed to buy up to 87,500 Brookdale shares from
Brookdale Chairman Michael Reschke for $15 a share, representing total
consideration of $1.3 million. Following this sale, Mr. Reschke will resign
from Brookdale's board of directors and two of Fortress designees will be
named.
o We believe that this transaction could position the company to be taken
private over the intermediate term, given BLCI's relatively small public
float and two financially strong investors (Capital Z Partners Ltd. and an
affiliate of Fortress Investment Fund). At roughly $15 a share, we
estimate that the company's publicly held equity would have a value of
approximately $80-85 million based on a public float of roughly 5.5 million
shares.
o At April 10, 2000, there were 9.85 million shares outstanding. Assuming
conversion of its $100 million 5.5% debenture issue at $18.25, Capital Z
controls 5.5 million shares. When this transaction closes, Capital Z and
the Fortress affiliate will control 9.4-9.5 million Brookdale shares in
total, or roughly 62% of total outstanding shares.
[CHART]
Stock Performance
Merrill Lynch & Co.
Global Securities Research & Economics Group
Global Fundamental Equity Research Department
<PAGE> 31
Brookdale Living Communities Inc. -- 25 April 2000 [MERRILL LYNCH LOGO]
On April 21, Prime Group Inc. announced that it agreed to sell 3.9 million
common Brookdale shares, or about 39.8% of shares outstanding, to an affiliate
of Fortress Investment Fund at $15 each for a total of $58.8 million. In
addition, Fortress agreed to buy up to 87,500 Brookdale shares from Brookdale
Chairman Michael Reschke for $1.3 million. Following this sale, Mr. Reschke
will resign from Brookdale's board of directors and two of Fortress designees
will be elected.
We believe that the Prime Group's decision to sell its position in Brookdale
may have been related to liquidity issues stemming from poor stock price
performance at the group's affiliate, Prime Retail. Stock in Prime Retail has
fallen to $1 11/16 per share from a high of $9 13/16 per share over the last
year. We believe that the buyers were attracted by the quality of Brookdale's
asset base and management team, as well as the independent living company's
solid track record in a troubled industry.
We believe that completion of this transaction could position the company to be
taken private over the intermediate term. The company has a relatively small
public float and two financially strong investors (Capital Z Partners Ltd. and
an affiliate of Fortress Investment Fund). Assuming a buyout price of $15 a
share, the publicly held stock of the company could be purchased for roughly
$80-85 million, based on a public float of roughly 5.5 million.
At April 10, 2000, there were 9.85 million shares outstanding. Assuming
conversion of its $100 million 5.5% debenture issue at $18.25, Capital Z
controls 5.5 million shares. When this transaction closes, Capital Z and the
Fortress affiliate will control 9.4-9.5 million Brookdale shares in total, or
roughly 62% of total outstanding shares.
By way of background, in addition to being Chairman of Brookdale, Mr. Reschke
has served as Chairman, Chief Executive Officer and President of the Prime
Group since 1981. He is also Chairman of Prime Retail, Inc. (NYSE:PRT), a
publicly traded real estate investment trust (REIT) involved in the ownership
and management of factory outlet centers. He is also Chairman of Prime Group
Realty Trust (NYSE:PGE), which is a publicly traded REIT focused on the
ownership and management of office and industrial buildings. Finally, Mr.
Reschke serves as a board member of Horizon Group Properties, Inc.
(NASDAQ:HPGI), a publicly traded REIT focused on ownership and management of
factory outlet centers.
The sale transaction includes an agreement that Fortress cannot acquire
additional shares of Brookdale unless a cash tender offer is made for all of
the company's remaining shares, at a price of at least $15 per share. Further,
any such tender offer cannot take place prior to July 5, 2000, without the
consent of Brookdale.
--------------------------------------------------------------------------------
(BLCI) The securities of the company are not listed but trade
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distribution of this report may be made only in states where these securities
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Opinion Key (X-a-b-c): Investment Risk Rating(X): A-Low, B-Average,
C-Above Average, D-High. Appreciation Potential Rating (a: Int. Term - 0-12
mo.: b: Long Term - greater than 1 yr.): 1-Buy, 2-Accumulate, 3-Neutral,
4-Reduce, 5-Sell, 6-No Rating. Income Rating(c): 7-Same/Higher, 8-Same/Lower,
9-No Cash Dividend.
Copyright 2000 Merrill Lynch, Pierce, Fenner & Smith Incorporated
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2
<PAGE> 32
[MERRILL LYNCH LOGO] IN-DEPTH REPORT UNITED STATES
LONG-TERM CARE
28 March 2000
BROOKDALE LIVING
Doug Simpson COMMUNITIES INC.
Vice President
(1) 212 449-9406 Q4 EPS ADVANCES 19%; ACCUMULATE*
COMPANY FOCUSING ON LARGER ACQUISITIONS
A.J. Rice
First Vice President
(1) 212 449-3200 REASON FOR REPORT: Analysis of Sales/Earnings LONG TERM
ACCUMULATE
PRICE: $11 3/8
<TABLE>
<CAPTION>
ESTIMATES (DEC) 1999A 2000E 2001E
--------------- ----- ----- -----
<S> <C> <C> <C>
EPS: $0.92 $1.15 $1.35
P/E: 12.4x 9.9x 8.4x
EPS Change (YoY): 25.0% 8.7%
Consensus EPS:
(First Call: 09-Mar-2000)
Q1 EPS (Mar): $0.24 $0.26
Cash Flow/Share: $1.49 $1.72 $2.04
Price/Cash Flow: 7.6x 6.6x 5.6x
</TABLE>
<TABLE>
<S> <C>
OPINION & FINANCIAL DATA
Investment Opinion: D-2-2-9
Mkt. Value / Shares Outstanding (mn): $148 / 11.6
Book Value/Share (Dec-1999): $8.32
Price/Book Ratio: 1.4x
ROE 1999E Average: 15.9%
LT Liability % of Capital: 30.4%
Est. 5 Year EPS Growth: 25.0%
STOCK DATA
52-Week Range: $17 1/2-$11
Symbol / Exchange: BLCI / OTC
Options: None
Institutional Ownership-Spectrum: 33.1%
Brokers Covering (First Call): 8
ML INDUSTRY WEIGHTINGS & RATINGS**
STRATEGY; WEIGHTING REL. TO MKT.:
Income: Underweight (07-Mar-1995)
Growth: Overweight (07-Mar-1995)
Income & Growth: Overweight (07-Mar-1995)
Capital Appreciation: Overweight (04-Feb-1998)
MARKET ANALYSIS; TECHNICAL RATING: Below Average (25-Jun-1998)
</TABLE>
*Intermediate term opinion last changed on 16-Sep-1999.
**The views expressed are those of the macro department and do not necessarily
coincide with those of the Fundamental analyst.
For full investment opinion definitions, see footnotes.
INVESTMENT HIGHLIGHTS:
o On March 13, Brookdale Living Communities, a leading provider of upscale
independent living services, reported fourth quarter 1999 earnings of
$0.25 per share, excluding onetime items, up 19% from $0.21 a year ago.
Results were in line with consensus and $0.01 below our specific estimate.
o Consolidated Q4 revenues advanced 28%, aided by 6% internal sales growth
and expansion of the BLCI portfolio. Facility operating income increased
33%, while same facility operating income increased 9% year-over-year.
Consolidated facility operating margin improved to 47% from 46% last year.
o Along with its earnings release, BLCI management signaled that it plans to
focus on larger acquisition opportunities for the foreseeable future. This
contrasts with a previous strategy of pursuing several single facility
acquisitions each quarter. As a result, we have lowered our 2000 EPS
estimates to $1.15 from $1.35, previously, to remove the previously
anticipated benefit of one-off transactions. A larger deal, if it is
accomplished, could create upside to our revised estimate.
o We are maintaining our Intermediate and Long-Term Attractive ratings on
BLCI shares.
[CHART]
Merrill Lynch & Co.
Global Securities Research & Economics Group
Global Fundamental Equity Research Department
<PAGE> 33
Brookdale Living Communities, Inc. - 28 March 2000
[MERRILL LYNCH LOGO]
FOURTH QUARTER HIGHLIGHTS
On March 13, Brookdale Living Communities reported a 19% increase in fourth
quarter EPS to $0.25 on a continuing operating basis. Highlights from the
quarter were as follows:
Consolidated revenues advanced 28% to $27.6 million. Same store revenues for 14
core properties increased 6% to $20.2 million. Average occupancy across the
entire BLCI portfolio was 95% in the fourth quarter (excluding recently opened
development projects and newly leased properties).
Facility operating income increased 33% to $12.1 million in the fourth quarter,
while facility operating margin improved to 47% from 45% last year. Same
facility operating margin improved to 47% from 46% last year.
Same facility after tax cash flow increased 19% to $4.2 million in the fourth
quarter.
As of March 13, BLCI has repurchased 1.7 million of 17 million fully diluted
shares, under a two million repurchase authorization.
NEW ACQUISITION STRATEGY
Brookdale management is in the process of revising its approach to acquisitions.
The company plans to continue its internal development program through which it
plans to build several 220-unit prototype facilities each year. At this point,
Brookdale management is focusing on larger scale acquisition opportunities.
Although Brookdale reports no decrease in the availability of single acquisition
opportunities, management feels that the potential exists to undertake a larger
acquisition, involving several thousand units, on very attractive terms.
Since coming public in May, 1997, Brookdale had targeted the acquisition of 4-6
facilities per year, representing 800-1,200 units. However, the company has
made only one small acquisition in each of the last two quarters. Discussions
with management lead us to believe that because of the current focus on larger
deals, we think it is likely that Brookdale will not complete any smaller
acquisitions over the next six months.
Because smaller deals have become less predictable and larger transactions are
difficult to time, we have removed all acquisitions from our 2000 financial
projections. As a result, we have reduced our 2000 EPS estimate to $1.15 from
$1.35 previously. For 2001, our initial estimate is $1.35.
DETAILED REVIEW OF FOURTH QUARTER RESULTS
Revenues. Brookdale reported a 27.5% increase in revenues to $27.6 million from
$21.7 million in the prior year. Resident fees increased 28.9% to $25.9 million
from $20.1 million in the year ago period, development fees increased to $1.6
million from $1.5 million and management fees were unchanged at $0.1 million.
Revenues were modestly below our projections, as we had anticipated 2 small
acquisitions in our forecast for the quarter.
On a same facility basis (including 14 properties), Brookdale reported a 6%
increase in revenues from the prior year period, to $20.2 million.
Excluding recently opened development projects and newly leased properties
(Berkshire of Castleton and Benchmark), Brookdale reported average occupancy of
95% across its portfolio, consistent with prior periods. The Benchmark facility
is reportedly 92% occupied currently, while the Berkshire of Castleton is about
85% full. Occupancy trends at Berkshire of Castleton are little changed from
September, as the facility has experienced a higher than expected turnover of
some of its more acute resident population.
Margin Trends. Brookdale reported an EBITDAR margin of 45.2% for the quarter,
up from 44.4% last year and up sequentially from 44.5% in the third
2
<PAGE> 34
[MERRILL LYNCH LOGO] Brookdale Living Communities, Inc. - 28 March 2000
quarter. The EBITDA margin increased to 21.6% from 20.9% last year and 20.6% in
the third quarter.
Fourth quarter operating expenses improved 130 basis points, falling to 53.2%
of resident fees from 54.5% in the prior year. On a sequential basis,
operating expenses fell from 54.1% of resident fees in the third quarter of
1999.
On a same store basis (including 14 properties), Brookdale reported a 9%
increase in facility operating income, to $9.5 million, as facility operating
margins improved to 47% from 46% in the fourth quarter of 1998. Management
reports that same store expenses grew a modest 3% year-over-year in the fourth
quarter, a trend that is expected to continue in 2000.
General and administrative expenses improved to 5.0% of revenues, down from
5.1% a year ago. Sequentially, G&A expense increased from 4.9% of revenues in
the third quarter.
Below the EBITDA line, the company reported D&A of $1.7 million, up from $1.3
million last year. Net interest income increased to $700K from $100K last year.
The company's 36.6% income tax rate increased from 34.1% last year, but was
essentially in line with the 36.5% rate reported in the third quarter.
One-time Charge Taken. During the fourth quarter of 1999, Brookdale incurred an
after-tax charge of $0.3 million related to the refinancing of its 209-unit
Edina Park Plaza facility in Edina, Minnesota. The company refinanced $14.6
million of 8.0% amortizing debt, by issuing $15.0 million of tax-exempt bonds,
which are payable interest only until maturity in 2029. In addition to being
interest only payments, the interest rate is a much lower 4.5% annually, which
should benefit the company's cash flow from this property.
Buyback Update. Through March 13, 2000, Brookdale has effectively repurchased
approximately 1.7 million of its outstanding shares, including 125,000 related
to the departure of former Chief Financial Officer Darryl Copeland. Roughly
1.3 million of these were repurchased by year-end 1999, with the remaining
400,000 purchased since January 1, 2000. The company still has approximately
425,000 shares in availability under the 2.0 million share repurchase
authorization that was put in place in September 1999.
Over the near term, we expect management to focus on pursuing larger
acquisitions, rather than pursue a further buyback authorization, once the
current repurchase program is completed.
Balance Sheet Information. Brookdale finished the year with $13.1 million in
cash, $198.9 million in debt (including $100 million of 5.5% convertible
subordinated notes) and $96.3 million in shareholder's equity. Treating the
convertible issue as equity, the company's net debt-to-total capitalization
stood at 30.4% at year-end.
PORTFOLIO DEVELOPMENT UPDATE
Brookdale's on-going development activities are continuing at a steady price.
Management noted that it assumed the lease on one facility in Illinois prior to
the end of 1999 and opened another facility in the state in March. In addition,
management noted that Brookdale currently has three additional sites currently
under current construction. These include 1 property in Battery Park City, NY
that should open in September, 2000, 1 in Pittsburgh, PA that is expected to
open in the second quarter of 2001 and 1 in Raleigh, NC which is expected to
open in September, 2000.
Management noted that the company has ample funding to complete its current
development program. At year-end 1999, Brookdale still had $13-15 million in
cash. Further, the company has approximately $33 million in availability under
their bank credit agreement.
3
<PAGE> 35
Brookdale Living Communities, Inc. - 28 March 2000 [MERRILL LYNCH LOGO]
At year-end 1999, Brookdale operated 5,094 units across its entire portfolio.
Prior to the close of 1999, Brookdale closed on the lease of the 287-unit
Benchmark in Hoffman Estates, Illinois on December 22.
On March 6, 2000, Brookdale opened the Meadows of Glen Ellyn, a 234-unit
facility that the company developed and now manages for a third party owner. As
a result of this opening, Brookdale currently operates 24 upscale facilities in
14 states with 5,328 units.
Finally, on December 27, 1999, Brookdale entered into an agreement to develope a
site location in Creve Coeur (St. Louis), Missouri. Management expects
construction to begin in the third or fourth quarter of 2000 and this property
would likely open around the fourth quarter of 2001. The project is expected to
take 16-18 months to complete. The 10-story project is similar in size to the
company's prototype model, and management expects to run Creve Coeur in a
similar manner.
4
<PAGE> 36
[MERRILL LYNCH LOGO] Brookdale Living Communities, Inc. - 28 March 2000
TABLE 1: BROOKDALE LIVING COMMUNITIES, INC. -
QUARTERLY INCOME STATEMENT 1999-2000E
($ IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FIRST QUARTER SECOND QUARTER THIRD QUARTER
2000E 1999A % CHANGE 2000E 1999A % CHANGE 2000E 1999A % CHANGE
--------------------------- -------------------------- --------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Resident Fees 27.2 23.8 14.5% 27.8 24.4 13.9% 28.5 24.9 14.6%
Development Fees 1.7 1.7 NM 1.7 1.6 NM 1.7 1.6 NM
Management Fees 0.2 0.1 119.2% 0.2 0.1 150.0% 0.2 0.1 77.0%
------- ---- ------ ---- ------- ------
Total Revenues 29.1 25.5 13.9% 29.7 26.1 13.6% 30.5 26.7 14.3%
Facility Operating Expenses 14.4 12.8 12.8% 14.6 12.9 13.5% 14.8 13.5 10.2%
General and Administrative 1.4 1.2 20.9% 1.5 1.3 13.5% 1.5 1.3 13.9%
------- ---- ------ ---- ------- ------
EBITDAR 13.2 11.6 14.4% 13.6 11.9 13.8% 14.1 11.9 18.9%
Lease Expense 6.7 6.3 6.6% 7.1 6.4 11.7% 7.2 6.4 13.1%
------- ---- ------ ---- ------- ------
EBITDA 6.5 5.3 23.7% 6.5 5.6 16.2% 6.9 5.5 25.8%
Depreciation and Amortization 1.8 1.4 32.2% 1.9 1.3 43.9% 1.9 1.6 21.2%
------- ---- ------ ---- ------- ------
EBIT 4.7 3.9 20.7% 4.6 4.3 7.6% 5.0 3.9 27.6%
Interest Income 2.8 1.5 81.1% 3.0 1.9 54.4% 3.1 2.7 14.1%
Interest Expense (2.5) (1.1) 121.8% (2.5) (1.8) 37.0% (2.5) (2.1) 21.7%
Minority Interest -- -- -- -- -- --
Pre-tax Operating Income 5.0 4.3 16.0% 5.1 4.4 16.3% 5.6 4.6 22.3%
Onetime Items
Income Tax Benefit (Expense) (1.8) (1.6) (1.9) (1.5) (2.1) (1.7)
Net Income 3.2 2.8 15.6% 3.3 2.6 23.5% 3.6 2.9 22.2%
Extraordinary Items, net of tax -- -- -- -- -- --
------- ---- ------ ---- ------- ------
Net Income 3.2 2.8 15.6% 3.3 2.6 23.5% 3.6 2.9 22.2%
Shares:
Basic 10.0 11.6 -13.6% 10.0 11.6 -13.6% 10.0 11.6 -13.5%
Diluted 15.8 11.7 34.8% 15.4 14.5 6.2% 15.4 17.1 -9.9%
EPS:
Basic $ 0.32 0.24 33.8% $ 0.33 $ 0.24 35.9% $ 0.36 $ 0.25 41.2%
Diluted $ 0.26 0.24 12.4% $ 0.28 $ 0.21 29.7% $ 0.30 $ 0.22 32.7%
Diluted, excluding
extraordinary items $ 0.26 0.24 12.4% $ 0.28 $ 0.23 22.6% $ 0.30 $ 0.23 30.4%
<CAPTION>
FOURTH QUARTER FULL YEAR
2000E 1999A % CHANGE 2000E 1999A % CHANGE
--------------------------- --------------------------
<S> <C> <C> <C> <C> <C> <C>
Resident Fees 29.0 25.9 12.3% 112.6 98.9 13.8%
Development Fees 1.8 1.6 NM 6.9 6.6 NM
Management Fees 0.2 0.1 63.0% 0.8 0.4 93.4%
------- ---- ------ -----
Total Revenues 31.0 27.6 12.2% 120.2 105.9 13.5%
Facility Operating Expenses 15.1 13.8 9.8% 59.0 52.9 11.5%
General and Administrative 1.6 1.4 11.4% 5.9 5.1 14.7%
------- ---- ------ -----
EBITDAR 14.3 12.5 14.9% 55.3 47.9 15.5%
Lease Expense 7.2 6.5 10.0% 28.2 25.5 10.3%
------- ---- ------ -----
EBITDA 7.2 6.0 20.3% 27.1 22.3 21.4%
Depreciation and Amortization 2.0 1.7 19.2% 7.6 5.9 28.2%
------- ---- ------ -----
EBIT 5.2 4.3 20.8% 19.5 16.4 19.0%
Interest Income 3.4 3.0 15.1% 12.3 9.2 34.3%
Interest Expense (2.6) (2.3) 12.1% (10.1) (7.3) 37.9%
Minority Interest -- -- -- --
Pre-tax Operating Income 6.0 4.9 21.4% 21.8 18.3 19.1%
Onetime Items
Income Tax Benefit (Expense) (2.2) (1.8) (8.0) (6.6)
Net Income 3.8 3.1 21.5% 13.8 11.4 20.7%
Extraordinary Items, net of tax -- (0.3) -- (0.3)
------- ---- ------ -----
Net Income 3.8 2.8 21.5% 13.8 11.1 20.7%
Shares:
Basic 10.0 11.0 -8.7% 10.0 11.4 -12.4%
Diluted 15.4 16.5 -6.5% 15.5 15.0 3.5%
EPS:
Basic $ 0.38 0.26 47.7% $ 1.38 $ 0.97 41.6%
Diluted $ 0.31 0.23 34.6% $ 1.15 $ 0.90 27.4%
Diluted, excluding
extraordinary items $ 0.31 0.25 24.4% $ 1.15 $ 0.92 24.6%
</TABLE>
Source: Company reports, Merrill Lunch estimates
5
<PAGE> 37
Brookdale Living Communities, Inc. - 28 March 2000 [MERRILL LYNCH LOGO]
TABLE 2: BROOKDALE LIVING COMMUNITIES, INC. - QUARTERLY INCOME STATEMENT
ANALYSIS 1999-2000E
<TABLE>
<CAPTION>
MARGIN ANALYSIS -FIRST QUARTER- SECOND QUARTER- THIRD QUARTER- FOURTH QUARTER- -FULL YEAR-
(AS A % OF REVENUES) 2000E 1999A 2000E 1999A 2000E 1999A 2000E 1999A 2000E 1999A
-------------------- ------ ------ ------ ------- ------ ------ ------ ------ ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Resident Fees 93.7% 93.2% 93.7% 93.5% 93.7% 93.4% 93.6% 93.5% 93.7% 93.4%
Development Fees 5.7% 6.5% 5.7% 6.3% 5.7% 6.2% 5.7% 6.0% 5.7% 6.2%
Management Fees 0.6% 0.3% 0.6% 0.3% 0.7% 0.4% 0.7% 0.5% 0.6% 0.4%
Total Revenues 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Facility Operating Expenses
(as a % of resident fees) 53.0% 53.8% 52.7% 52.8% 52.1% 54.1% 52.1% 53.2% 52.4% 53.5%
General and Administrative 4.8% 4.5% 4.9% 4.9% 4.9% 4.9% 5.0% 5.0% 4.9% 4.9%
EBITDAR 45.5% 45.3% 45.8% 45.7% 46.3% 44.5% 46.3% 45.2% 46.0% 45.2%
Lease Expense 23.1% 24.6% 23.9% 24.3% 23.6% 23.9% 23.1% 23.5% 23.4% 24.1%
EBITDA 22.5% 20.7% 21.9% 21.4% 22.7% 20.6% 23.2% 21.6% 22.6% 21.1%
Depreciation and Amortization 6.2% 5.3% 6.4% 5.1% 6.2% 5.9% 6.5% 6.1% 6.3% 5.6%
EBIT 16.3% 15.4% 15.5% 16.3% 16.4% 14.7% 16.8% 15.6% 16.2% 15.5%
Interest Income 9.6% 6.1% 10.1% 7.4% 10.2% 10.2% 11.0% 10.7% 10.2% 8.6%
Interest Expense -8.6% -4.4% -8.3% -6.8% -8.2% -7.7% -8.4% -8.4% -8.4% -6.9%
Minority Interest 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Pre-tax Income 17.3% 17.0% 17.3% 16.9% 18.4% 17.2% 19.3% 17.9% 18.1% 17.3%
Income Tax Rate 36.6% 36.4% 36.6% 34.1% 36.6% 36.5% 36.6% 36.6% 36.6% 35.9%
Net Income 11.0% 10.8% 11.0% 10.1% 11.7% 10.9% 12.3% 11.3% 11.5% 10.8%
</TABLE>
Source: Company reports, Merrill Lynch estimates
6
<PAGE> 38
[MERRILL LYNCH LOGO] Brookdale Living Communities Inc. - 28 March 2000
<TABLE>
<CAPTION>
TABLE 3: BROOKDALE LIVING COMMUNITIES, INC. - LONG-TERM INCOME STATEMENT
1997-2001E ($ IN MILLIONS, EXCEPT PER SHARE DATA)
1997 1998 1999 2000E 2001E
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Resident Fees 40.6 71.8 98.9 112.6 121.0
Development Fees -- 5.7 6.6 6.9 7.3
Management Fees 0.1 0.3 0.4 0.8 0.9
---- ----- ------ ------ ------
Total Revenues 40.7 77.7 105.9 120.2 129.3
Facility Operating Expenses 21.8 39.9 52.9 59.0 62.9
General and Administrative 2.2 4.9 5.1 5.9 6.4
---- ----- ------ ------ ------
EBITDAR 16.8 32.9 47.9 55.3 59.9
Lease Expense 10.0 17.9 25.5 28.2 28.6
---- ----- ------ ------ ------
EBITDA 6.8 15.0 22.3 27.1 31.4
Depreciation and Amortization 3.8 4.9 5.9 7.6 8.0
---- ----- ------ ------ ------
EBIT 3.0 10.2 16.4 19.5 23.4
Interest Income 0.8 4.3 9.2 12.3 13.5
Interest Expense (3.9) (4.2) (7.3) (10.1) (10.0)
Minority Interest (0.1) -- -- -- --
Pre-tax Income (0.5) 10.3 18.3 21.8 26.8
Income Tax Benefit (Expense) 0.3 (3.6) (6.6) (8.0) (9.8)
Net Income (0.2) 6.7 11.4 13.8 17.0
Extraordinary Items, net of tax -- (0.3) --
Net Income 11.1 13.8
Shares:
Basic NM 9.7 11.4 10.0 10.0
Diluted NM 10.0 15.0 15.5 15.4
EPS:
Basic NM $0.68 $ 0.97 $ 1.38 $ 1.70
Diluted NM $0.67 $ 0.92 $ 1.15 $ 1.35
</TABLE>
Note 1997 figures include results for predecessor properties from 1/1/97
through 5/6/97 and BLCI from 5/7/97 through 12/31/97.
Source: Company reports, Merrill Lynch estimates
7
<PAGE> 39
Brookdale Living Communities Inc. - 28 March 2000 [MERRILL LYNCH LOGO]
TABLE 4: BROOKDALE LIVING COMMUNITIES, INC. - LONG-TERM INCOME STATEMENT
ANALYSIS 1997-2001E ($ IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
(AS A % OF REVENUES) 1997 1998 1999 2000E 2001E
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Resident Fees 99.7% 92.4% 93.4% 93.7% 93.6%
Development Fees 0.0% 7.3% 6.2% 5.7% 5.6%
Management Fees 0.3% 0.3% 0.4% 0.6% 0.7%
---------- ---------- ---------- ---------- ----------
Total Revenues 100.0% 100.0% 100.0% 100.0% 100.0%
Facility Operating Expenses (as a % of
resident fees) 53.6% 55.6% 53.5% 52.4% 52.0%
General and Administrative 5.4% 6.3% 4.9% 4.9% 5.0%
EBITDAR 41.2% 42.3% 45.2% 46.0% 46.4%
Lease Expense 24.5% 23.0% 24.1% 23.4% 22.1%
EBITDA 16.6% 19.3% 21.1% 22.6% 24.3%
Depreciation and Amortization 9.4% 6.2% 5.6% 6.3% 6.2%
EBIT 7.2% 13.1% 15.5% 16.2% 18.1%
Interest Income 1.9% 5.5% 8.6% 10.2% 10.4%
Interest Expense -9.5% -5.3% -6.9% -8.4% -7.7%
Minority Interest -0.3% 0.0% 0.0% 0.0% 0.0%
Pre-tax Income -1.2% 13.2% 17.3% 18.1% 20.8%
Income Tax Benefit (Expense) Rate 63.8% 35.3% 35.9% 36.6% 36.6%
Net Income -0.4% 8.6% 10.8% 11.5% 13.2%
</TABLE>
Source: Company reports, Merrill Lynch estimates
<TABLE>
<CAPTION>
(YEAR-OVER-YEAR GROWTH) 1998 1999 2000E 2001E
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Resident Fees 76.9% 37.8% 13.8% 7.5%
Development Fees NM 16.5% 4.1% 6.4%
Management Fees 97.7% 50.6% 93.4% 23.7%
Total Revenues 90.9% 36.3% 13.5% 7.6%
Family Operating Expenses 83.5% 32.5% 11.5% 6.6%
General and Administrative 123.0% 5.5% 14.7% 8.5%
EBITDAR 96.2% 45.5% 15.5% 8.4%
Lease Expense 79.0% 42.7% 10.3% 1.4%
EBITDA 121.5% 48.8% 21.4% 15.7%
Depreciation and Amortization 26.9% 22.2% 28.2% 5.3%
EBIT 244.3% 61.5% 19.0% 19.8%
Interest Income 461.2% 114.2% 34.3% 9.3%
Interest Expense 7.9% 75.5% 37.9% -0.5%
Minority Interest
Pre-tax Income NM 77.8% 19.1% 23.3%
Income Tax Benefit (Expenses) Rate NM 81.2% 21.3% 23.3%
Net Income NM 71.9% 20.7% 23.3%
</TABLE>
Source: Company reports, Merrill Lynch estimates
8
<PAGE> 40
[MERRILL LYNCH LOGO] Brookdale Living Communities Inc. - 28 March 2000
TABLE 5: BROOKDALE LIVING COMMUNITIES, INC. - REVENUE MODEL SUMMARY
1997-2001E ($ IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1997A % Change 1998A % Change 1999A % Change 2000E % Change 2001E % Change
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
TOTAL RESIDENT FEES
Q1(1) 7.5 15.7 109.7% 23.8 51.9% 27.2 14.5% 29.0 6.3%
Q2(2) 9.5 17.2 80.1% 24.4 41.9% 27.8 13.9% 29.9 7.4%
Q3 11.2 18.9 68.6% 24.9 32.0% 28.5 14.6% 30.8 8.0%
Q4 12.4 20.1 62.1% 25.9 28.9% 29.0 12.3% 31.4 8.2%
----- -------- ---- ------ ----- ---- ----- ----- ----- -----
Total for the Year 40.6 71.8 76.9% 98.9 37.8% 112.6 13.8% 121.0 7.5%
DEVELOPMENT FEES
Q1(1) -- 1.19 1.67 40.2% 1.67 0.2% 1.75 4.8%
Q2(2) -- 1.39 1.64 17.6% 1.70 4.0% 1.80 5.9%
Q3 -- 1.54 1.64 6.4% 1.73 5.5% 1.85 6.9%
Q4 -- 1.54 1.65 7.4% 1.76 6.8% 1.90 8.0%
---- -------- ---- ------ ----- ---- ----- ----- ----- -----
Total for the Year -- 5.65 6.59 16.5% 6.86 4.1% 7.30 6.4%
MANAGEMENT FEES
Q1(1) -- 0.05 0.07 37.7% 0.16 119.2% 0.22 37.5%
Q2(2) 0.03 0.06 96.9% 0.07 14.3% 0.18 150.0% 0.23 27.8%
Q3 0.05 0.07 44.0% 0.11 56.9% 0.20 77.0% 0.24 20.0%
Q4 0.05 0.07 46.0% 0.14 84.9% 0.22 63.0% 0.25 13.6%
---- -------- ---- ------ ----- ---- ----- ----- ----- -----
Total for the Year 0.13 0.26 97.7% 0.39 50.6% 0.76 93.4% 0.94 23.7%
TOTAL REVENUES
Q1(1) 7.5 16.9 126.4% 25.5 51.0% 29.1 13.9% 30.9 6.4%
Q2(2) 9.6 18.7 94.7% 26.1 40.0% 29.7 13.6% 31.9 7.5%
Q3 11.2 20.5 82.2% 26.7 30.1% 30.5 14.3% 32.9 8.0%
Q4 12.4 21.7 74.4% 27.6 27.5% 31.0 12.2% 33.6 8.3%
---- -------- ---- ------ ----- ---- ----- ----- ----- -----
Total for the Year 40.7 77.7 90.9% 105.9 36.3% 120.2 13.5% 129.3 7.6%
</TABLE>
Stabilized residences are those that have been open for twelve months or have
reached 95% occupancy as of the beginning of the quarter.
(1) includes results for predecessor properties from 1/1/97 through 3/31/97.
(2) includes results for predecessor properties from 4/1/97 through 5/6/97 and
BLCI from 5/7/97 through 6/30/97.
Source: Company reports; Merrill Lynch estimates.
9
<PAGE> 41
Brookdale Living Communities Inc. - 28 March 2000 [MERRILL LYNCH LOGO]
Table 6: Brookdale Living Communities, Inc. - Revenue Model Detail - Stabilized
Residences - 1997-2001E
($ in millions, except per share data)
<TABLE>
<CAPTION>
1997A % Change 1998A % Change 1999A % Change 2000E % Change 2001E % Change
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OWNED AND LEASED RESIDENCES (EXCL. MANAGED)
Q1 12 17 41.7% 19 11.8% 19 0.0%
Q2 13 17 30.8% 19 11.8% 19 0.0%
Q3 14 18 28.6% 19 5.6% 19 0.0%
Q4 11 16 19 18.8% 19 0.0% 19 0.0%
Total for the Year
AVG. NUMBER OF UNITS PER RESIDENCE
Q1 220 220 0.2% 224 1.4% 224 0.0%
Q2 225 223 -0.7% 224 0.1% 224 0.0%
Q3 217 219 0.9% 224 2.2% 224 0.0%
Q4 215 217 221 2.1% 224 0.9% 224 0.0%
Total for the Year
ESTIMATED OWNED/LEASED RESIDENT UNITS (ENDING)
Q1 2,640 3,747 41.9% 4,247 13.3% 4,247 0.0%
Q2 2,922 3,795 29.9% 4,247 11.9% 4,247 0.0%
Q3 3,036 3,938 29.7% 4,247 7.8% 4,247 0.0%
Q4 2,370 3,469 4,208 21.3% 4,247 0.9% 4,247 0.0%
Total for the Year
AVERAGE CAPACITY
Q1 2,505.0 3,608.2 44.0% 4,227.3 17.2% 4,246.5 0.5%
Q2 2,781.2 3,771.3 35.6% 4,246.5 12.6% 4,246.5 0.0%
Q3 2,979.3 3,866.7 29.8% 4,246.5 9.8% 4,246.5 0.0%
Q4 3,252.8 4,073.0 25.2% 4,246.5 4.3% 4,246.5 0.0%
Total for the Year
AVERAGE OCCUPANCY
Q1 95.0% 95.0% 0.0% 95.0% 0.0% 95.0% 0.0%
Q2 95.0% 95.0% 0.0% 95.0% 0.0% 95.0% 0.0%
Q3 95.0% 95.0% 0.0% 95.0% 0.0% 95.0% 0.0%
Q4 97.0% 95.0% -2.1% 95.0% 0.0% 95.0% 0.0%
Total for the Year
RESIDENT DAYS
Q1 214,181 308,505 44.0% 361,434 17.2% 363,076 0.5%
Q2 240,435 326,030 35.6% 367,110 12.6% 367,110 0.0%
Q3 260,393 337,949 29.8% 371,144 9.8% 371,144 0.0%
Q4 290,279 355,980 22.6% 371,144 4.3% 371,144 0.0%
---------- ---------- ---------- ----------
Total for the Year 1,005,288 1,328,464 32.1% 1,470,832 10.7% 1,472,474 0.1%
AVERAGE DAILY RESIDENT FEE
Q1 $ 73.10 $ 77.07 5.4% $ 75.34 -2.2% $ 79.76 5.9%
Q2 $ 71.53 $ 74.87 4.7% $ 75.72 1.1% $ 81.36 7.4%
Q3 $ 72.46 $ 73.68 1.7% $ 76.85 4.3% $ 82.99 8.0%
Q4 $ 69.11 $ 72.62 5.1% $ 78.20 7.7% $ 84.65 8.2%
---------- ---------- ---------- ----------
Total for the Year $ 71.41 $ 74.48 4.3% $ 76.54 2.8% $ 82.20 7.4%
TOTAL RESIDENT FEES
Q1 15.7 23.8 51.9% 27.2 14.5% 29.0 6.3%
Q2 17.2 24.4 41.9% 27.8 13.9% 29.9 7.4%
Q3 18.9 24.9 32.0% 28.5 14.6% 30.8 8.0%
Q4 20.1 25.9 28.9% 29.0 12.3% 31.4 8.2%
---------- ---------- ----- ---------- ----- ---------- ----
Total for the Year 71.8 98.9 37.8% 112.6 13.8% 121.0 7.5%
</TABLE>
Source: Company reports; Merrill Lynch estimates. Note: Stabilized residences
are those that have been open for twelve months or have reached 95% occupancy as
of the beginning of the quarter.
10
<PAGE> 42
[MERRILL LYNCH LOGO] Brookdale Living Communities, Inc.- 28 March 2000
[BLCI] The securities of the company are not listed but trade
over-the-counter in the United States. In the US, retail sales and/or
distribution of this report may be made only in states where these securities
are exempt from registration or have been qualified for sale. MLPF&S or its
affiliates usually make a market in the securities of this company.
Opinion Key [X-a-b-c]; Investment Risk Rating(X): A-Low, B-Average, C-Above
Average, D-High, Appreciation Potential Rating (a: Int. Term - 0-12 mo.; b: Long
Term - > 1 yr.): 1-Buy, 2-Accumulate, 3-Neutral, 4-Reduce, 5-Sell, 6-No Rating.
Income Rating (c): 7-Same/Higher, 8-Same/Lower, 9-No Cash Dividend.
Copyright 2000 Merrill Lynch, Pierce, Fenner & Smith Incorporated (MLPF&S).
This report has been issued and approved for publication in the United Kingdom
by Merrill Lynch, Pierce, Fenner & Smith Limited, which is regulated by SFA, and
has been considered and issued in Australia by Merrill Lynch Equities
(Australia) Limited (ACN 006 276 795), a licensed securities dealer under the
Australian Corporations Law. The information herein was obtained from various
sources; we do not guarantee its accuracy or completeness. Additional
information available.
Neither the information nor any opinion expressed constitutes an offer, or
an invitation to make an offer, to buy or sell any securities or any options,
futures or other derivatives related to such securities ("related investments").
MLPF&S and its affiliates may trade for their own accounts as odd-lot dealer,
market maker, block positioner, specialist and/or arbitrageur in any securities
of this issuer(s) or in related investments, and may be on the opposite side of
public orders. MLPF&S, its affiliates, directors, officers, employees and
employee benefit programs may have a long or short position in any securities of
this issuer(s) or in related investments. MLPF&S or its affiliates may from time
to time perform investment banking or other services for, or solicit investment
banking or other business from, any entity mentioned in this report.
This research report is prepared for general circulation and is circulated
for general information only. It does not have regard to the specific
investment objectives, financial situation and the particular needs of any
specific person who may receive this report. Investors should seek financial
advice regarding the appropriateness of investing in any securities or
investment strategies discussed or recommended in this report and should
understand that statements regarding future prospects may not be realized.
Investors should note that income from such securities, if any, may fluctuate
and that each security's price of value may rise or fall. Accordingly,
investors may receive back less than originally invested. Past performance is
not necessarily a guide to future performance.
Foreign currency rates of exchange may adversely affect the value, price
or income of any security or related investment mentioned in this report. In
addition, investors in securities such as ADRs, whose values are influenced by
the currency of the underlying security, effectively assume currency risk.
11
