<PAGE> 1
Exhibit (c)(4)
PRESENTATION TO THE SPECIAL COMMITTEE OF
THE BOARD OF DIRECTORS OF:
[BROOKDALE LIVING COMMUNITIES, INC. LOGO]
REGARDING PROJECT CASTLE
June 5, 2000
[MERRILL LYNCH LOGO]
<PAGE> 2
TABLE OF CONTENTS
1. Executive Summary
2. Current Situation
3. Preliminary Valuation Analysis
4. Preliminary Conclusions and Next Steps
Appendix
[MERRILL LYNCH LOGO]
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1
<PAGE> 4
EXECUTIVE SUMMARY
<PAGE> 5
EXECUTIVE SUMMARY
Background
o On May 18, 2000, the Prime Group closed the sale of 3.9 million
shares, or approximately 39.8% of BRIDGE's outstanding common shares,
to Fortress (the "Fortress Purchase") for $15.00 per share
o In conjunction with this transaction, Michael Reschke resigned from
the Board of Directors, and Fortress appointed two new members, Wesley
Edens and William Doniger
o Fortress is subject to a standstill agreement that expires on May 14,
2002, prohibiting them from acquiring additional shares of BRIDGE,
except in the case of an all-cash tender for the remaining shares of
BRIDGE common stock at no less than $15.00 per share
* Fortress cannot commence such an offer before July 5, 2000
* Fortress was approved as an "interested shareholder" for purposes
of Delaware 203
o To date, Fortress and Capital Z have not held substantive discussions
regarding Capital Z's investment, despite encouragement from Merrill
Lynch to do so (with BRIDGE's consent)
o On June 1, 2000, we received a $15.00 per share proposal from Fortress
and a request to commence discussions with Capital Z
[MERRILL LYNCH LOGO] 1
<PAGE> 6
EXECUTIVE SUMMARY
Merrill Lynch Due Diligence
o Merrill Lynch has performed three weeks of due diligence on the
assets, liabilities and operations of BRIDGE, as well as reviewed
certain publicly available information regarding the other publicly
traded assisted living companies(a)
o To date, Merrill Lynch, amongst other things, has:
* Met with senior members of BRIDGE management to review BRIDGE's
operations, business strategy and market positioning, as well as
specifically discuss BRIDGE's facility portfolio
* Created, with the assistance of BRIDGE management, a 5-year
consolidated financial model
- As evidenced throughout this presentation, Merrill has
segmented BRIDGE's stabilized and development properties
* Visited assets projected to contribute approximately 80% of
BRIDGE's 2000E Net Operating Income
* Held in-person meetings with representatives of both Fortress and
Capital Z
* Consulted with members of its high yield and leveraged finance
groups in order to assess the feasibility of financing in the
current capital market environment
o In the upcoming week or two, Merrill Lynch plans to pursue more
"confirmatory" due diligence, including a review of asset valuations
with the Company
----------
(a) For purposes of this presentation, the selected publicly traded comparable
companies include Alterra Healthcare (ALI), American Retirement (ACR), ARV
Assisted Living (SRS), Capital Senior Living (CSU), Emeritus (ESC) and
Sunrise Assisted Living (SNRZ).
[MERRILL LYNCH LOGO] 2
<PAGE> 7
EXECUTIVE SUMMARY
VALUATION METHODOLOGIES
o Merrill Lynch's preliminary valuation analysis is predicated upon the
following principal methodologies:
<TABLE>
<CAPTION>
Methodology Key Issues
<S> <C>
1. Public Comparables Analysis o Analysis of relevant trading
multiples and operating performance
for "comparable" companies within
the assisted living universe
o Lack of true comparable universe
2. Net Asset Valuation o Performed by both investment
bankers and appraisers
o Asset-by-asset approach that
distinguishes between stabilized
and development assets
o Specific capitalization rate range
designated to each stabilized asset
o Discounting cash flow analysis used
to value development projects
3. Comparable Acquisition o Analysis of relevant multiples
Transaction Analysis paid in selected transactions
involving companies in the assisted
living industry
o Limited universe of acquisitions
of assisted living companies with a
"broad" portfolio of assets
4. Corporate Discounted Cash o Discounting unleveraged cash flows
Flow Analysis projected in the five-year
corporate model at the weighted
average cost of capital
5. Financial Sponsor Internal Rate o Examination of the maximum price
of Return Analysis that can be paid by a financial
buyer based upon relevant
constraints, including leverage and
coverage ratios and equity return
requirements
6. Premiums Paid Analysis o Examination of premiums paid in a
selected number of going-private
transactions
</TABLE>
[MERRILL LYNCH LOGO] 3
<PAGE> 8
EXECUTIVE SUMMARY
Valuation Summary
o Based upon our analysis to date, $15.00 per share appears to be an attractive
value
* 11.3 x 2000E EBITDAR
* 13.0 x 2000E Adjusted EBITDAR
* Approximately an 8.85% capitalization rate on stabilized assets (using
2000E Adjusted Net Operating Income), assuming development at cost
* Approximately a 9.10% capitalization rate on stabilized assets (using 2000E
Adjusted Net Operating Income) at the full discounted cash flow valuation
for the development assets (30% premium to cost)
* Approximately 23%-27% IRR to Fortress over a five-year horizon
* 39.5% premium to pre-offer share price
* At the estimated cost basis for BRIDGE's largest institutional shareholders
(range from $13.30 to $15.50)
o Given the current state of the public market for assisted living companies,
remaining a public company (with a very large shareholder) is not a highly
attractive alternative
* Wall Street has given up on the industry and is not likely to change this
view anytime soon
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<PAGE> 9
EXECUTIVE SUMMARY
Review of Strategic Alternatives
o Need to better understand Fortress Proposal
* Encourage negotiations with Capital Z and approve waiver of
standstill agreements
* Review the proposed merger agreement
o Discuss strategic alternatives
* Broad auction process
- With a potential public announcement (of proposal and/or
Merrill Lynch retention)
* Limited auction process
- Make a handful of contacts while negotiating with Fortress
* Negotiate with Fortress
- Price
- No-Shop
- Fiduciary out/breakup fee
- Contract terms
o Consider legal maneuvers, including potential implementation of a "rights
plan" in connection with strategic alternatives
[MERRILL LYNCH LOGO] 5
<PAGE> 10
2
<PAGE> 11
CURRENT SITUATION
<PAGE> 12
CURRENT SITUATION
Overview of BRIDGE
o BRIDGE is a highly focused and profitable niche player within the
assisted living industry
o BRIDGE's portfolio primarily consists of high-end, "independent"
living facilities and, accordingly, has significantly different
operating performance characteristics from many of the other major
publicly traded assisted living entities
* Smallest number of assets (24) and units (5,094) of any of the
top seven publicly traded assisted living companies; however,
BRIDGE has a high average units per asset ratio (212)
* Greater level of development activity vis-a-vis total asset base
(in 1999, 26% versus industry mean of 15%)
* Strong operating margins (1999 EBITDAR margin of 45.2% versus
industry mean of 31.8%) with a lesser level of dependence on
development and management fees (1999 Adjusted EBITDAR margin(a)
of 41.3% versus industry mean of 24.5%)
o As a result of these operating and financial characteristics, Merrill
Lynch believes that BRIDGE is not directly comparable to the other
major publicly traded assisted living entities
o Nevertheless, as this presentation demonstrates, BRIDGE is not
currently rewarded in the public markets for its premium asset quality
and strong financial performance (and it is unclear if and when it
would be so rewarded)
* While BRIDGE has consistently outperformed the assisted living
public comparables universe, it has still underperformed the S&P
500 by nearly 70% since January 1998
---------------
(a) Excludes development and management fees. Margin based on total resident
fees.
[MERRILL LYNCH LOGO]
<PAGE> 13
CURRENT SITUATION
OVERVIEW OF ASSISTED LIVING INDUSTRY
o Since early 1998, assisted living companies have experienced an unfavorable
public equity market
o This weak public market performance can be
attributed to various factors, including:
* A consistent record of these
companies missing earnings estimates
* Limited public equity float and
research coverage
* Decline in health care and real estate sectors
* Increased financial leverage to fund development activity (in
conjunction with diminished public equity market values)
- Dependence on complex, off-balance sheet financing structures
(i.e., "Black Box")
o In light of these factors, assisted living companies have experienced a
dramatic decrease in their equity market values and undergone sharp
multiple contraction
* The total assisted living industry equity value has declined from its
peak of $3.2 billion in April 1998 to its current level of $0.8
billion
* The mean forward EBITDAR multiple for the universe of publicly traded
assisted living companies has steadily declined from 11.1x in November
1998 to its current level of 9.0x
* Forward P/E multiples have exhibited an even more dramatic
contraction, declining from a median of 23.5x in March 1998 to the
current median of 8.3x (mean of 14.8x)
- The current median of 8.3x represents the low industry multiple
over the past three years
----------
Note: Mean and median values based on average for all seven major assisted
living companies (including BRIDGE). As seen later in the presentation on page
12, the mean values exclude BRIDGE.
[MERRILL LYNCH LOGO] 7
<PAGE> 14
CURRENT SITUATION
Assisted Living Industry Stock Performance Analysis(a)
[CHART]
---------
(a) Includes BRIDGE, Alterra Healthcare, American Retirement, ARV Assisted
Living, Capital Senior Living, Emeritus and Sunrise Assisted Living.
(b) Public comparables composite includes BRIDGE, Alterra Healthcare, American
Retirement, ARV Assisted Living, Capital Senior Living, Emeritus and Sunrise
Assisted Living.
(c) To calculate total industry public float, insider holdings based on
respective proxies for the selected comparable companies.
[MERRILL LYNCH LOGO] 8
<PAGE> 15
CURRENT SITUATION
Public Market Capitalization Summary - Assisted Living Public Comparables
(Dollars in Millions)
TOTAL EQUITY VALUE(a)
[GRAPH]
<TABLE>
<CAPTION>
SNRZ BLCI ACR ALI CSU ESC SRS
<S> <C> <C> <C> <C> <C> <C>
$401.3 $135.4 $94.3 $45.6 $45.6 $30.2 $16.4
</TABLE>
MEDIAN EQUITY
VALUE: $45.6 MM
TOTAL MARKET CAPITALIZATION(b)
[GRAPH]
<TABLE>
<CAPTION>
SNRZ ALI ACR BLCI ESC CSU SRS
<S> <C> <C> <C> <C> <C> <C>
$1,102.4 $926.7 $579.4 $327.5 $214.6 $119.8 $111.6
</TABLE>
AVERAGE EQUITY VALUE/
MARKET CAP. RATIO: 23.7%(d)
ADJUSTED MARKET CAPITALIZATION(c)
[GRAPH]
<TABLE>
<CAPTION>
ALI SNRZ ACR BLCI ESC SRS CSU
<S> <C> <C> <C> <C> <C> <C>
$1,736.6 $1,214.2 $720.5 $618.6 $452.4 $447.1 $119.8
</TABLE>
AVERAGE EQUITY VALUE/
ADJUSTED MARKET CAP.
RATIO: 17.0%(e)
----------
(a) Based on share prices as of June 1, 2000.
(b) Total market capitalization equals total equity value plus short-term debt,
long-term debt, minority interest and preferred stock less cash and cash
equivalents.
(c) Total market capitalization plus lease expenses for the first quarter of
2000 annualized and capped at 10.0x.
(d) Calculated as the average of the individual company equity value/market
capitalization ratios.
(e) Calculated as the average of the individual company equity value/adjusted
market capitalization ratios.
[MERRILL LYNCH LOGO] 9
<PAGE> 16
CURRENT SITUATION
Wall Street Earnings Estimates Progression(a)
PUBLICLY TRADED ASSISTED LIVING COMPANIES HAVE DEMONSTRATED
A CONSISTENT RECORD OF EARNINGS DISAPPOINTMENTS
[CHART] [CHART] [CHART] [CHART]
[CHART] [CHART] [CHART]
----------
(a) Graphs show earnings per share estimates based on First Call consensus on a
monthly basis from January 1998 to May 2000. Final month for FY 1998 and FY
1999 is actual EPS.
[MERRILL LYNCH LOGO] 10
<PAGE> 17
CURRENT SITUATION
Historical Multiple Progression
THE UNFAVORABLE PUBLIC MARKET ENVIRONMENT FOR THE ASSISTED LIVING
INDUSTRY IS EVIDENCED BY THE SHARP MULTIPLE CONTRACTION EXPERIENCED
BY THE MAJOR PUBLICLY TRADED ENTITIES
FORWARD EBITDAR MULTIPLE
[CAPTION]
<TABLE>
MEAN MEAN
WITH WITHOUT
BRIDGE BRIDGE BRIDGE
------ ------ ------
<S> <C> <C> <C>
November 1998 11.1x 11.5x 8.8x
May 1999 8.5 8.6 7.6
November 1999 8.7 8.8 8.1
Current 9.0 9.2 8.6
CHANGE FROM NOVEMBER 1998:
Multiple (2.1x) (2.3x) (0.2x)
Percentage (18.9%) (20.0%) (2.3%)
</TABLE>
FORWARD P/E MULTIPLE
[CAPTION]
<TABLE>
MEAN MEAN
WITH WITHOUT
BRIDGE BRIDGE BRIDGE
------ ------ ------
<S> <C> <C> <C>
November 1998 19.8x 21.0x 15.0x
May 1999 12.6 13.3 9.9
November 1999 10.0 9.8 10.6
Current(a) 14.8 16.4 8.3
CHANGE FROM NOVEMBER 1998:
Multiple (5.0x) (4.6x) (6.7x)
Percentage (25.3%) (21.9%) (44.7%)
</TABLE>
----------
(a) The current median forward P/E multiple is 8.3x. This represents a decline
of 10.5x or 56% from the median multiple of 18.8x in November 1998.
[MERRILL LYNCH LOGO] 11
<PAGE> 18
CURRENT SITUATION
Public Market Overview
(Dollars in Millions, Except Per Share Amounts)
MARKET CAPITALIZATION
Share Price on 6/1/00 $13.75
Fully Diluted Shares Outstanding (MM)(a) 9.9
------
MARKET VALUE OF EQUITY $135.4
Plus: Net Debt(b) 192.1
------
MARKET CAPITALIZATION $327.5
First Mortgage and HRPT Related Debt 291.1
------
ADJUSTED MARKET CAPITALIZATION $618.6
======
Projected 5-Year EPS Growth(c) 25.0%
2000 P/E/ 5-Year EPS Growth 0.48x
TRADING MULTIPLES
<TABLE>
<CAPTION>
ADJUSTED
EBITDAR EBITDAR EBITDA P/E
PERIOD MULTIPLE(d) MULTIPLE(d) MULTIPLE MULTIPLE
-------- ----------- ----------- -------- --------
<S> <C> <C> <C> <C>
LTM 12.6X 14.7X 14.1X 14.2X
2000E 11.1 12.7 11.8 12.0
2001E 8.6 9.7 8.0 8.3
</TABLE>
HISTORICAL AND PROJECTED FINANCIAL RESULTS
<TABLE>
<CAPTION>
ADJUSTED
PERIOD EBITDAR EBITDAR(e) EBITDA EPS
------ ------- ---------- ------ -----
<S> <C> <C> <C> <C>
LTM $49.2 $42.1 $23.1 $0.97
2000E 55.9 48.6 27.8 1.15
2001E 72.2 63.9 41.1 1.66
</TABLE>
Note: Projected financial information provided by BRIDGE management.
(a) Based on the treasury share method; includes 9.9 million common shares.
Stock options of 0.9 million options at weighted average price of $15.19
are currently out-of-the money.
(b) As of March 31, 2000. Includes $98.9 million of long-term debt, $100.0
million of convertible note, $0.1 million of short-term debt less $6.9
million cash and cash equivalents.
(c) Projected 5-year EPS growth based on First Call as of June 1, 2000.
(d) Based on Adjusted Market Capitalization.
(e) Excludes development and management fees.
[MERRILL LYNCH LOGO] 12
<PAGE> 19
CURRENT SITUATION
Potential Strategic Acquisitions - Qualitative Overview
REMAINING A PUBLIC COMPANY AND PURSUING STRATEGIC ACQUISITIONS DOES NOT APPEAR
TO BE A VIABLE MEANS TO REALIZE ENHANCED VALUE FOR BRIDGE SHAREHOLDERS
o BRIDGE's P/E multiple is not significantly higher than its peers (if at
all), thereby inhibiting BRIDGE's ability to consummate an accretive stock
pooling transaction
* BRIDGE currently trades at 8.3x 2001E Management EPS (10.1x Street
EPS)
- Sunrise Assisted Living and American Retirement trade at 26.1x
and 25.0x, respectively
* Only ARV Assisted Living (7.8x) and Capital Senior Living (6.6x) have
lower multiples
o Furthermore, the relatively high existing level of financial leverage for
both BRIDGE and its peers inhibits BRIDGE's ability to pursue a transaction
involving a combination of stock and cash
o It is unlikely that, through acquisition, BRIDGE could create a compelling
story such that its liquidity and Wall Street research coverage would
improve to a degree such that BRIDGE could be appropriately distinguished
from the other publicly traded assisted living companies
o Most large acquisitions would diminish BRIDGE's operating margins, asset
quality and development story, thereby diluting many of the features that
make BRIDGE an attractive and distinctive assisted living entity
[MERRILL LYNCH LOGO] 13
<PAGE> 20
3
<PAGE> 21
PRELIMINARY VALUATION ANALYSIS
<PAGE> 22
PRELIMINARY VALUATION ANALYSIS
Summary of Consolidated Financial Information
(Dollars in Millions, Except per Share Amounts)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, PROJECTED YEAR ENDED DECEMBER 31, CAGR
------------------------------ -------------------------------------------------------- -----------
1997 1998 1999 2000 2001 2002 2003 2004 (1999-2004)
-------- -------- -------- -------- -------- -------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Resident Fees $ 30.1 $ 71.8 $ 98.9 $ 118.9 $ 137.8 $ 168.0 $ 210.7 $ 217.5 17.1%
Management Fees 0.1 0.3 0.4 0.9 1.9 2.3 2.3 2.3 42.9%
Development Fees 0.0 5.7 6.6 6.4 6.4 6.4 6.4 6.4 (0.6%)
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total Revenue 30.2 77.7 105.9 126.2 146.1 176.7 219.4 226.2 16.4%
Growth -- 157.0% 36.3% 19.2% 15.8% 21.0% 24.2% 3.1%
Net Operating Income 14.3 37.8 53.2 62.3 77.8 98.1 122.6 128.7 19.3%
Margin 47.4% 48.6% 50.2% 49.4% 53.2% 55.5% 55.9% 56.9%
EBITDAR 12.2 32.9 48.1 55.9 72.2 92.9 116.7 122.8 20.6%
Margin 40.2% 42.3% 45.4% 44.3% 49.4% 52.6% 53.2% 54.3%
EBITDA 5.2 15.0 22.5 27.8 41.1 53.9 61.7 65.4 23.7%
Margin 17.3% 19.3% 21.3% 22.1% 28.1% 30.5% 28.1% 28.9%
Net Income(a) 0.5 6.7 11.8 14.1 22.2 31.8 36.9 39.1 27.0%
Growth 1.7% 1172.5% 77.7% 19.3% 57.5% 43.0% 15.9% 5.9%
Diluted EPS(a) $ 0.07 $ 0.67 $ 0.95 $ 1.15 $ 1.66 $ 2.25 $ 2.55 $ 2.69 23.2%
Growth -- 837.7% 42.0% 20.9% 44.4% 35.7% 13.4% 5.4%
First Call Consensus EPS -- -- -- $ 1.15 $ 1.36 -- -- -- 25.0%
Adjusted EBITDAR(b) 12.0 27.0 41.1 48.6 63.9 84.2 108.0 114.0 22.7%
Margin 39.9% 37.6% 41.5% 40.9% 46.3% 50.1% 51.2% 52.4%
</TABLE>
----------
Note: Financial projections for 2000-2002 based on BRIDGE management; 2003-2004
based on Merrill Lynch.
(a) Excludes Extraordinary Items.
(b) EBITDAR less Development Fees and Management Fees.
[MERRILL LYNCH LOGO] 14
<PAGE> 23
PRELIMINARY VALUATION ANALYSIS
Variance Analysis - Year-to-Date Financial Results for BRIDGE's Stabilized
Assets
<TABLE>
<CAPTION>
1ST QUARTER 1ST QUARTER VARIANCE
ACTUAL BUDGET ------------------------
PROPERTY NAME NOI NOI $ %
------------------------------ ----------- ----------- ---------- --------
<S> <C> <C> <C> <C>
The Hallmark $ 1,777,186 $ 1,750,092 $ 27,094 1.5 %
The Devonshire 1,342,852 1,195,399 147,453 12.3 %
The Heritage of Des Plaines 980,713 985,486 (4,774) (0.5)%
Woodside Terrace 939,145 985,399 (46,254) (4.7)%
The Atrium 789,234 744,439 44,795 6.0 %
River Bay Club 715,426 735,843 (20,418) (2.8)%
Hawthorn Lakes 676,021 748,588 (72,568) (9.7)%
The Classic at West Palm Beach 633,787 691,327 (57,540) (8.3)%
Benchmark 617,347 617,586 (239) (0.0)%
Edina Park Plaza 608,525 569,532 38,993 6.8 %
Ponce de Leon 414,125 403,998 10,127 2.5 %
Brendenwood 411,782 444,115 (32,333) (7.3)%
The Springs of East Mesa 370,714 410,908 (40,194) (9.8)%
The Gables at Farmington 367,696 536,613 (168,917) (31.5)%
Park Place 311,516 333,281 (21,765) (6.5)%
Chatfield 274,042 295,801 (21,759) (7.4)%
The Kenwood at LakeView 244,952 363,577 (118,624) (32.6)%
Berkshire 166,470 185,399 (18,930) (10.2)%
The Gables at Brighton 130,471 222,661 (92,190) (41.4)%
The Willows (1,909) 36,917 (38,826) (105.2)%
Madison Sr Care (37,916) (8,042) (29,874) NM
----------- ----------- --------- ------
TOTAL $11,732,177 $12,248,919 $(516,742) (4.2)%
=========== =========== ========= ======
</TABLE>
----------
Note: BRIDGE management attributes budget shortfalls primarily to increased
local competition at Hawthorn Lakes, The Classic at West Palm Beach, Springs of
East Mesa, The Gables at Farmington, and The Gables of Brighton. Other factors
sited by BRIDGE management include the recent completion of The Willows (a
54-unit assisted living center adjacent to the existing Hawthorn Lakes
community) and a $9 million renovation at The Kenwood at Lake View, as well as
the current renovation of The Gables at Farmington. In addition, it should be
noted that the executive directors at Hawthorn Lakes and The Gables at
Farmington have recently been replaced.
[MERRILL LYNCH LOGO] 15
<PAGE> 24
PRELIMINARY VALUATION ANALYSIS
Acquisition Pricing Matrix
(Dollars in Millions, Except per Share Amounts)
<TABLE>
<CAPTION>
MARKET CAPITALIZATION AS MULTIPLE OF: OFFER PRICE AS MULTIPLE OF:
PREMIUM TO: -------------------------------------- ---------------------------
---------------- ADJUSTED EBITDAR ADJ. EBITDAR MGMT. STREET MGMT.
OFFER CURRENT BEFORE EQUITY MARKET MARKET ----------------- ---------------- 2000E 2001E 2001E
PRICE PRICE OFFER(a) VALUE(b) CAP.(c) CAP.(d) LTM 2000E(e) LTM 2000E(e) EPS(e) EPS(e) EPS(e)
----- ------- -------- -------- ------- -------- ----- -------- ----- -------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$14.00 1.8% 30.2% $137.9 $330.0 $621.1 12.6x 11.1x 14.8x 12.8x 12.2x 10.3x 8.4x
15.00 9.1% 39.5% 147.8 339.8 630.9 12.8 11.3 15.0 13.0 13.0 11.0 9.0
16.00 16.4% 48.8% 158.3 350.4 641.5 13.0 11.5 15.2 13.2 13.9 11.8 9.6
17.00 23.6% 58.1% 169.1 361.2 652.3 13.3 11.7 15.5 13.4 14.8 12.5 10.2
DATA $13.75 $10.75 $49.2 $55.9 $42.1 $48.6 $1.15 $1.36 $1.66
</TABLE>
----------
(a) Based on BRIDGE closing price on April 19, 2000.
(b) Based on 9.9 million common shares and 0.9 million options with a weighted
average exercise price of $15.19, which are treated under the treasury
share method.
(c) Includes cash of $6.9 million, short-term debt of $0.1 million, long-term
debt of $98.9 million and convertible debt of $100.0 million.
(d) Includes $197.4 million of first mortgage debt and $93.8 million of HRPT
property related debt.
(e) Based on projections provided by BRIDGE management, which are generally
in-line with Wall Street equity research estimates. Merrill Lynch equity
research has 2000E EBITDAR and Adjusted EBITDAR estimates of $55.3 million
and $47.6 million, respectively. First Call consensus EPS estimate for 2000
is $1.15.
[MERRILL LYNCH LOGO] 16
<PAGE> 25
PRELIMINARY VALUATION ANALYSIS
Summary Per Share Valuation by Methodology(a)
(Dollars in Millions, Except per Share Amounts)
[CHART]
----------
(a) Projected financial information provided by BRIDGE management; assumes 9.9
million common shares, 0.9 million options at a weighted average exercise
price of $15.19, $199.0 million of unsecured debt, $6.9 million of cash and
$291.1 million of first mortgage debt and debt related to the HRPT
properties.
[MERRILL LYNCH LOGO] 17
<PAGE> 26
PRELIMINARY VALUATION ANALYSIS
Premiums Paid Analysis in Going-Private Transactions
<TABLE>
<CAPTION>
Premium to Share Price
Transaction ----------------------------
Date Date Target Value Offer 1 Day Prior 1 Month Prior
Announced Effective Name ($ in mm) Price to Offer to Offer
---------- --------- -------------------------------- ----------- ------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
5/8/97 11/4/97 GranCare $558.8 $10.00 29.0% 17.6%
5/8/97 11/4/97 Living Centers of America 1,365.1 40.50 11.0% 16.1%
7/9/97 9/23/97 Control Data Systems Inc. 176.6 20.25 29.1% 35.0%
7/21/97 2/27/98 Zilog 389.0 25.00 11.7% 22.0%
8/14/97 12/29/97 Tuesday Morning 337.4 25.00 22.7% 17.6%
12/22/97 5/21/98 Dynatech 762.9 47.75 29.9% 25.0%
2/11/98 6/10/98 MTL Inc. 250.1 40.00 37.9% 56.5%
3/17/98 7/31/98 BET Holdings(a) 462.3 63.00 4.0% 17.5%
7/28/98 6/18/99 CompDent Corp 196.6 15.00 11.1% 3.0%
7/29/98 9/11/98 E-Z Serve 107.9 0.60 37.1% 37.1%
8/13/98 12/31/98 Envirotest Systems Corp 640.9 17.25 15.0% (4.8%)
3/24/99 11/4/99 Knott (Warburg, Pincus)(b) 490.8 25.00 63.9% 30.7%
3/25/99 5/10/99 Sheridan Healthcare 131.2 9.25 8.8% 17.5%
5/18/99 11/30/99 O'Sullivan Industries Holdings 310.7 19.25 10.8% 19.8%
6/16/99 5/30/00 TSI 157.4 12.00 17.8% 30.6%
6/28/99 12/7/99 Big Flower Holdings 1,792.8 36.75 12.0% 18.1%
7/12/99 12/17/99 Happy Kids Inc. 119.5 11.50 9.5% (17.9%)
7/22/99 3/10/00 White Cap Industries 239.0 16.50 49.2% 50.0%
8/24/99 2/2/00 Aavid Thermal Technologies 252.9 25.50 29.1% 27.1%
10/6/99 3/6/00 Conso International Corp(a) 106.4 9.00 77.8% 58.2%
11/4/99 2/15/00 Cleveland Indians Baseball 115.5 22.66 9.9% 26.8%
11/22/99 2/2/00 Garden Ridge Corp 108.6 11.50 58.6% 70.4%
12/9/99 3/29/00 Gleason 245.1 23.00 27.8% 31.0%
12/14/99 3/14/00 Transportation Technologies 412.8 20.00 29.0% 39.1%
12/23/99 5/16/00 Wilmar Industries 204.1 18.25 30.4% 17.3%
1/18/00 Pending Dayton Superior Corp 292.9 27.00 46.4% 66.2%
1/19/00 Pending Sun International Hotels(a) 378.7 24.00 24.3% 34.3%
1/23/00 Pending Echelon International Corp 389.0 34.00 42.0% 34.3%
1/31/00 Pending Jason Inc.(a) 314.8 11.25 57.9% 55.2%
3/6/00 Pending Data Transmission Network Corp 477.7 29.00 16.0% 52.6%
3/23/00 Pending US Can 538.0 21.00 6.0% 62.3%
</TABLE>
<TABLE>
<CAPTION>
SUMMARY DATA
------------------------------
<S> <C> <C>
Maximum 77.8% 70.4%
Mean 27.9% 31.2%
Median 27.8% 30.6%
Minimum 4.0% (17.9%)
</TABLE>
<TABLE>
<CAPTION>
IMPLIED BRIDGE OFFER PRICE
-------------------------------
<S> <C> <C>
Maximum $19.11 $21.72
Mean 13.75 16.72
Median 13.74 16.65
Minimum 11.18 10.47
</TABLE>
----------
Note: Based on Securities Data Corporation dated 5/31/00. Includes all
domestic going private transactions since 5/1/97 with transaction values
between $100 million and $2.0 billion.
(a) Represent minority squeeze-out transactions.
(b) Based on BRIDGE stock prices of $10.75 and $12.75 on April 19th and March
20th, respectively.
[MERRILL LYNCH LOGO] 18
<PAGE> 27
PRELIMINARY VALUATION ANALYSIS
Public Comparables Analysis
<TABLE>
<CAPTION>
2001E P/E Multiple
SNRZ ACR BLCI SRS CSU ALI ESC
----- ----- ---- ---- ---- --- ---
<S> <C> <C> <C> <C> <C> <C>
26.1x 25.0x 8.3x 7.8x 6.6x NM NM
</TABLE>
Mean (a) = 16.4x
<TABLE>
<CAPTION>
2000E EBITDAR Multiple
ALI SNRZ BLCI ESC ACR CSU SRS
----- ----- ----- ----- ----- ---- ---
<S> <C> <C> <C> <C> <C> <C>
12.6x 12.3x 11.1x 10.8x 10.7x 4.5x N/A
</TABLE>
Mean (a) = 10.2x
<TABLE>
<CAPTION>
2000E Adjusted EBITDAR Multiple (b)
ALI SNRZ BLCI ESC ACR CSU SRS
----- ----- ----- ----- ----- ---- ---
<S> <C> <C> <C> <C> <C> <C>
13.9x 13.3x 12.7x 12.3x 12.0x 5.5x N/A
</TABLE>
Mean (a) = 11.4x
<TABLE>
<CAPTION>
2000E EBITDA Multiple
ALI SNRZ ESC BLCI ACR CSU SRS
----- ----- ----- ----- ----- ---- ---
<S> <C> <C> <C> <C> <C> <C>
17.4x 12.8x 12.4x 11.8x 11.5x 4.5x N/A
</TABLE>
Mean (a) = 11.7x
Note: Stock prices as of June 1, 2000. Financial projections and EPS estimates
for comparable companies based on Wall Street equity research. BRIDGE based on
projections provided by management.
(a) Mean excludes BRIDGE.
(b) EBITDAR excludes development and management fees.
[MERRILL LYNCH LOGO] 19
<PAGE> 28
PRELIMINARY VALUATION ANALYSIS
Public Comparables Analysis Valuation Summary(a)
(Dollars in Millions, Except per Share Amounts)
[CHART]
----------
(a) Projected financial information provided by BRIDGE management; assumes 9.9
million common shares, 0.9 million options at a weighted average exercise
price of $15.19, $199.0 million of unsecured debt, $6.9 million of cash and
$291.1 million of first mortgage debt and debt related to the HRPT
properties.
[MERRILL LYNCH LOGO] 20
<PAGE> 29
PRELIMINARY VALUATION ANALYSIS
Net Asset Valuation Overview
(Dollars in Millions, Except per Share Amounts)
<TABLE>
<CAPTION>
DEVELOPMENT AT VALUE BASED ON THIRD MERRILL LYNCH
COST PARTY APPRAISALS DCF ANALYSIS
----------------------- ----------------------- -----------------------
HIGH LOW HIGH LOW HIGH LOW
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
VALUE OF STABILIZED OPERATIONS:
2000E Adjusted Net Operating Income $ 50.4 $ 50.4 $ 50.4 $ 50.4 $ 50.4 $ 50.4
Blended Capitalization Rate 9.1% 10.1% 9.1% 10.1% 9.1% 10.1%
-------- -------- -------- -------- -------- --------
Implied Enterprise Value of Stabilized
Properties $ 555.7 $ 500.5 $ 555.7 $ 500.5 $ 555.7 $ 500.5
Less: Debt Associated with Stabilized
Properties (390.2) (390.2) (390.2) (390.2) (390.2) (390.2)
-------- -------- -------- -------- -------- --------
Implied Equity Value of Stabilized
Properties $ 165.5 $ 110.3 $ 165.5 $ 110.3 $ 165.5 $ 110.3
Value of Development Properties 50.6 50.6 46.4 46.4 66.1 66.1
Income Tax Positions ($6.0 mm of NOLs) 1.6 1.6 1.6 1.6 1.6 1.6
Below Market Debt ($80.0 mm) 9.4 9.4 9.4 9.4 9.4 9.4
Less: Face Value of Convertible Debt (100.0) (100.0) (100.0) (100.0) (100.0) (100.0)
Less: Short-term Debt (0.1) (0.1) (0.1) (0.1) (0.1) (0.1)
Plus: Cash and Cash Equivalents 6.9 6.9 6.9 6.9 6.9 6.9
-------- -------- -------- -------- -------- --------
Total Equity Value $ 133.9 $ 78.7 $ 129.7 $ 74.5 $ 149.4 $ 94.1
Total Common Shares in Millions(a) 9.9 9.9 9.9 9.9 9.9 9.9
-------- -------- -------- -------- -------- --------
TOTAL EQUITY VALUE PER SHARE $ 13.60 $ 7.99 $ 13.17 $ 7.56 $ 15.17 $ 9.56
======== ======== ======== ======== ======== ========
Total Equity Value per Share With
Developments at:
Cost + 10% $ 14.11 $ 8.50 -- -- -- --
Cost + 20% $ 14.62 $ 9.02 -- -- -- --
</TABLE>
---------
(a) Assumes that 0.9 million of options at an exercise price of $15.19 are
out-of-the-money.
[MERRILL LYNCH LOGO] 21
<PAGE> 30
PRELIMINARY VALUATION ANALYSIS
Net Asset Valuation Sensitivity Analysis
(Dollars in Millions, Except per Share Amounts)
BRIDGE PER SHARE VALUE
<TABLE>
<CAPTION>
VALUE OF CAPITALIZATION RATE (ON STABILIZED ASSETS):
DEVELOPMENT -------------------------------------------------------------------------------------
ASSETS 8.75% 9.00% 9.25% 9.50% 9.75% 10.00%
----------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
$45.0 $15.13 $13.51 $11.97 $10.51 $9.13 $7.82
50.0 15.60 14.02 12.48 11.02 9.64 8.33
55.0 16.07 14.52 12.99 11.53 10.15 8.83
60.0 16.53 15.03 13.49 12.04 10.66 9.34
65.0 17.00 15.51 14.00 12.54 11.16 9.85
70.0 17.46 15.97 14.51 13.05 11.67 10.36
</TABLE>
[MERRILL LYNCH LOGO] 22
<PAGE> 31
PRELIMINARY VALUATION ANALYSIS
Net Asset Valuation - Stabilized Assets (Based on Adjusted 2000E NOI)
(Dollars in Millions)
<TABLE>
<CAPTION>
ESTIMATED DEBT @ 3/31/00
CAPITALIZATION IMPLIED ------------------------------------------ IMPLIED
RATE ENTERPRISE VALUE SYNTHETIC EST. EQUITY VALUE
2000E -------------- ---------------- CONSOL. LEASE DEBT @ --------------
ADJ. LOW HIGH LOW HIGH MORTGAGE FIRST HRPT TOTAL HIGH LOW
FACILITY NOI RATE RATE RATE RATE DEBT MORTGAGE PROPERTIES DEBT VALUE VALUE
-------- ------ ------ ----- ------ ------ --------- --------- ---------- ------- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Benchmark of Hoffman Est. $ 3.0 9.3% 10.3% $ 32.0 $ 28.9 -- $ 22.5 -- $ 22.5 $ 9.5 $ 6.4
Brendenwood 1.7 9.8% 10.8% 17.4 15.8 -- 11.8 -- 11.8 5.6 4.0
Classic 2.7 9.5% 10.5% 28.3 25.6 -- 20.6 -- 20.6 7.8 5.1
Devonshire 4.8 8.5% 9.5% 56.7 50.7 $33.0 -- -- 33.0 23.7 17.7
Edina 2.2 8.8% 9.8% 25.3 22.7 15.0 -- -- 15.0 10.2 7.6
Gables @ Brighton 1.0 10.3% 11.3% 9.7 8.8 -- -- $ 9.0 9.0 0.6 (0.2)
Gables @ Farmington 2.5 9.5% 10.5% 26.3 23.8 -- 18.5 -- 18.5 7.8 5.3
Hallmark 6.9 9.0% 10.0% 76.9 69.2 -- -- 59.9 59.9 17.0 9.3
Hawthorn 3.0 9.0% 10.0% 33.1 29.8 13.0 -- -- 13.0 20.1 16.8
Heritage 3.8 8.5% 9.5% 45.2 40.4 32.0 -- -- 32.0 13.2 8.4
Kenwood at Lakeview 1.7 9.5% 10.5% 18.2 16.4 -- 16.8 -- 16.8 1.4 (0.3)
Oakleaf 0.9 9.5% 10.5% 9.0 8.1 -- 6.3 -- 6.3 2.7 1.8
Park Place 1.2 9.5% 10.5% 12.4 11.2 -- -- 11.0 11.0 1.4 0.2
Ponce de Leon 1.6 9.0% 10.0% 17.2 15.5 -- 12.1 -- 12.1 5.1 3.4
River Bay 3.2 9.5% 10.5% 33.6 30.4 -- 27.8 -- 27.8 5.9 2.7
Springs of East Mesa 1.5 9.0% 10.0% 16.8 15.1 -- -- 13.8 13.8 3.0 1.3
The Atrium 3.0 9.0% 10.0% 33.8 30.4 -- 18.0 -- 18.0 15.8 12.4
The Chatfield 1.3 10.0% 11.0% 13.0 11.8 -- 11.8 -- 11.8 1.1 (0.1)
Willows 0.6 9.0% 10.0% 6.4 5.8 6.0 -- -- 6.0 0.4 (0.2)
Woodside Terrace 3.9 8.8% 9.8% 44.4 39.8 -- 31.2 -- 31.2 13.2 8.7
----- ---- ---- ------ ------ ----- ------ ----- ------ ------ ------
Total $50.4 9.1% 10.1% $555.7 $500.5 $99.1 $197.4 $93.8 $390.2 $165.5 $110.3
====== ======
</TABLE>
[MERRILL LYNCH LOGO] 23
<PAGE> 32
PRELIMINARY VALUATION ANALYSIS
Net Asset Valuation - Development Assets
(Dollars in Millions)
<TABLE>
<CAPTION>
INVESTMENT
INVESTMENT CERTIFICATE AT:
------------------------------------------
THIRD-PARTY MERRILL LYNCH
PROPERTY COST COST + 10% COST + 20% APPRAISAL(a) DCF ANALYSIS(c)
------------------------------ ----------- ----------- ----------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Battery Park $ 8,168,958 $ 8,985,854 $ 9,802,750 $ 6,347,135 $12,980,770
Raleigh 5,550,849 6,105,934 6,661,019 3,030,940 8,116,370
Glen Ellyn 4,119,043 4,530,947 4,942,852 4,279,708 10,974,560
Columbus 1,436,390 1,580,029 1,723,668 4,835,647 2,008,645
Lisle 2,160,000 2,376,000 2,592,000 3,473,015 4,950,757
Creve Coeur 1,109,987 1,220,986 1,331,984 1,109,987(b) 1,392,409
Mt. Lebanon 9,209,130 10,130,043 11,050,956 1,660,985 4,981,736
Southfield 8,715,943 9,587,537 10,459,132 8,873,760 9,258,354
Austin 5,475,817 6,023,399 6,570,980 8,123,865 6,742,150
Huntley 3,580,078 3,938,086 4,296,094 3,580,078(b) 3,580,078(b)
Houston 1,095,617 1,205,179 1,314,740 1,095,617(b) 1,095,617(b)
----------- ----------- ----------- ----------- -----------
TOTAL VALUE $50,621,812 $55,683,993 $60,746,175 $46,410,735 $66,081,445
TOTAL VALUE PER SHARE (9.9 mm) $ 5.14 $ 5.65 $ 6.17 $ 4.71 $ 6.71
</TABLE>
-----------
(a) Present value of the implied equity value (appraised property value less
BRIDGE's projections for total debt balance at stabilization) discounted at
15%.
(b) Based on value of investment certificate at cost.
(c) Discounted cash flow analysis assumes a pre-stabilization discount rate of
25% and a post-stabiliation discount rate of 15%. Exit capitalization rates
at 2004 are equal to those given in third-party property appraisals.
[MERRILL LYNCH LOGO] 24
<PAGE> 33
PRELIMINARY VALUATION ANALYSIS
Comparable Acquisition Transaction Analysis
(Dollars in Millions)
<TABLE>
<CAPTION>
NET
DATE DATE OFFER TRANS.
ANNOUNCED EFFECTIVE ACQUIROR TARGET CONSIDERATION VALUE(a) VALUE(b)
--------- --------- -------- ------ ------------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
2/7/99 Pending Capital Senior Living ILM Senior Living(f) 100% Cash $ 155.0 $ 155.6
1/4/99 10/6/99 Alterra Healthcare HCR Manor Care 100% Cash 200.0 200.0
10/19/98 5/14/99 Sunrise Assisted Living Karrington Health 100% Stock 89.7 186.1
4/20/98 9/15/98 Kapson Senior Quarters Atria Communities 100% Cash 483.0 597.8
10/2/97 4/30/98 Prometheus Asstd. Living Kapson Senior Quarters 100% Cash 113.0 252.7
7/31/97 10/23/97 Alternative Living Services Sterling House 100% Stock 122.7 151.9
5/30/97 7/3/97 Whitehall Street Real Estate Integrated Living Comm. 100% Cash 79.7 102.8
<CAPTION>
OFFER AS A
ADJUSTED FORWARD FORWARD PREMIUM
TRANS. EBITDAR EBITDA TO PRICE
VALUE (c) MULT.(d)(e) MULT.(d) 1 DAY PRIOR
--------- ----------- -------- -----------
<C> <C> <C> <C>
$ 155.6 9.4x NA NM
200.0 NA NA NA
265.1 12.3 13.7 43.4%
637.8 15.8 16.2 2.5%
336.6 10.8 11.1 (0.9%)
344.9 11.1 12.9 30.3%
220.7 17.6* NA 26.9%
</TABLE>
SUMMARY DATA
<TABLE>
<S> <C> <C> <C>
Maximum 17.6x 16.2x 43.4%
Mean 11.9 13.5 20.5%
Median 11.1 13.3 26.9%
Minimum 9.4 11.1 (0.9%)
</TABLE>
IMPLIED BRIDGE OFFER PRICE*
<TABLE>
<S> <C> <C> <C>
Maximum $48.08 $25.47 $15.42
Mean 18.13 18.28 12.95
Median 14.01 17.80 13.64
Minimum NM 12.06 10.66
</TABLE>
----------
*Excluded from mean and median calculations.
(a) Net Offer Value = Fully Diluted Shares Outstanding x Offer Price.
(b) Transaction Value = Net Offer Value + Short-Term Debt + Long-Term Debt
+ Minority Interest + Preferred Stock - Cash.
(c) Adjusted Transaction Value = Transaction Value + (10.0 x Latest Quarter's
Annualized Lease Expense).
(d) Target's financial projections based on Wall Street equity research, except
for ILM Senior Living, which is based on projections used by Cohen & Steers
Capital Advisors in its fairness opinion delivered to the Board of ILM
Senior Living.
(e) Multiple based on Adjusted Transaction Value.
(f) Based on latest revised offer on April 18, 2000.
(g) Based on BRIDGE management 2000E EBITDAR and EBITDA of $55.9 million and
$27.8 million, respectively; also based on BRIDGE'S stock price on April
19, 2000, of $10.75.
[MERRILL LYNCH LOGO] 25
<PAGE> 34
PRELIMINARY VALUATION ANALYSIS
Discounted Cash Flow Analysis
(Dollars in Millions, Except per Share Amounts)
<TABLE>
<CAPTION>
A + B - C = D
DISCOUNT TOTAL ENTERPRISE VALUE DCF NET DEBT
RATE FOR FOR STABILIZED ASSETS VALUE FOR (INCLUDES TOTAL EQUITY VALUE
STABILIZED ----------------------- DVLPMNT. OPTION -----------------------
ASSETS 10.0x 10.5x 11.0x ASSETS PROCEEDS) 10.0x 10.5x 11.0x
---------- ----------------------- --------- --------- -----------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
12.0% $568.8 $589.5 $610.3 $66.1 $469.5 $165.4 $186.1 $206.9
12.5% 557.6 577.9 598.2 66.1 469.5 154.2 174.5 194.8
13.0% 546.7 566.5 586.4 66.1 469.5 143.3 163.1 183.0
13.5% 536.0 555.5 574.9 66.1 469.5 132.6 152.0 171.5
14.0% 525.7 544.7 563.6 66.1 469.5 122.3 141.3 160.2
</TABLE>
<TABLE>
<CAPTION>
DISCOUNT TOTAL EQUITY VALUE IMPLIED 2000E EBITDAR
RATE FOR PER SHARE(a) MULTIPLE(b)
STABILIZED ----------------------- -----------------------
ASSETS 10.0x 10.5x 11.0x 10.0x 10.5x 11.0x
---------- ----------------------- -----------------------
<S> <C> <C> <C> <C> <C> <C>
12.0% $15.38 $17.31 $19.24 11.4x 11.7x 12.1x
12.5% 14.34 16.23 18.11 11.2 11.5 11.9
13.0% 13.75 15.17 17.02 11.0 11.3 11.7
13.5% 12.34 14.14 15.95 10.8 11.1 11.5
14.0% 11.37 13.14 14.90 10.6 10.9 11.3
</TABLE>
----------
Note: BRIDGE projections discounted 5 years.
(a) Based on 10.8 total shares (9.9 million common shares and 0.9 million
common stock options). Option proceeds included in net debt.
(b) Based on $55.9 million of 2000E EBITDAR.
[MERRILL LYNCH LOGO] 26
<PAGE> 35
PRELIMINARY VALUATION ANALYSIS
Transaction Overview -- Equity Return and Pro Forma Credit Statistics
<TABLE>
<CAPTION>
OFFER PRICE
--------------------------------------------------
$ 13.00 $ 14.00 $ 15.00 $ 16.00 $ 17.00
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Total Fortress Investment (in mm)(a)(b) $ 134.1 $ 140.8 $ 147.6 $ 154.3 $ 161.1
5-YEAR EQUITY RETURN @ AN EBITDAR
MULTIPLE OF:
10.0x 21.4% 21.0% 20.5% 20.0% 19.5%
10.5x 23.8% 23.3% 22.8% 22.3% 21.8%
11.0x 26.0% 25.5% 25.0% 24.5% 24.0%
11.5x 28.0% 27.5% 27.0% 26.5% 26.0%
12.0x 30.0% 29.5% 28.9% 28.4% 27.9%
COVERAGE AND LEVERAGE STATISTICS:(c)
2000E EBITDAR/Fixed Charges 1.64x 1.64x 1.64x 1.64x 1.64x
Total Adjusted Debt/2000E EBITDAR 7.2x 7.2x 7.2x 7.2x 7.2x
Total Adjusted Debt/Total Adjusted
Book Cap. 68.1% 68.1% 68.1% 68.1% 68.1%
</TABLE>
----------
(a) Assumes that Fortress has spent $60 million on the initial purchase of
shares from the Prime Group and its affiliates and will pay for the
purchase of the remaining shares of BRIDGE common stock and options with
equity capital.
(b) Total Fortress investment is calculated as the price for the Prime Group's
shares ($60 million) + (offer value x 5.9 million common shares and 0.9
million options) less option proceeds ($13.8 million).
(c) Merrill Lynch's analysis assumes that no new debt is issued in order to
finance the transaction and that Capital Z converts its subordinated notes
into equity at the offer price.
[MERRILL LYNCH LOGO] 27
<PAGE> 36
PRELIMINARY VALUATION ANALYSIS
Overview of Potential Buyers
(Dollars in Millions)
<TABLE>
<CAPTION>
Adjusted
Overall Potential Equity Market Market 2001E
Ability Acquiror Value Cap Cap. Net Income
------- --------- ------ ------ -------- ----------
<S> <C> <C> <C>
Low Alterra Healthcare $45.6 $926.7 $1,736.6 ($4.4)
Medium American Retirement 94.3 579.4 720.5 3.8
Low ARV Assisted Living 16.4 111.6 447.1 2.1
Medium Capital Senior Living 45.6 119.8 119.8 6.9
Low Emeritus 30.2 214.6 452.4 (5.4)
High Sunrise Assisted Living 401.3 1,102.4 1,214.2 15.7
</TABLE>
<TABLE>
<CAPTION>
Debt/ 1999 1999
2001E Market EBITDAR Adj. EBITDAR
P/E Capitalization Margin Margin
----- -------------- ------- ------------
<C> <C> <C> <C>
NM 98.3% 29.1% 24.2%
25.0x 90.2% 31.0% 26.5%
7.8x 99.1% 26.5% 25.9%
6.6x 87.9% 47.3% 25.8%
NM 97.0% 23.6% 20.5%
26.1x 71.6% 33.4% 23.9%
</TABLE>
[MERRILL LYNCH
LOGO] 28
<PAGE> 37
PRELIMINARY VALUATION ANALYSIS
Affordability Analysis
(Dollars in Millions, Except per Share Amounts)
100% Stock Pooling Transaction @ $15.00 per Share
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
ACQUIROR EQUITY BRIDGE FORTRESS ADJ.DEBT/ 2001E EPS
2001 P/E 2001 E EPS VALUE @ PRO FORMA PRO FORMA ADJ. BREAKEVEN
POTENTIAL BUYER MULTIPLE ACCRETION/(DILUTION) DEAL PRICE OWN OWN MKT. CAP PRICE
--------------- -------- -------------------- ---------- --------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
ALTERRA HEALTHCARE NM $0.39 NM $193.4 76.4% 30.6% 89.4% NM
American Retirement 25.0x 0.36 163.9% 242.1 61.0% 24.4% 80.9% $52.25
ARV Assisted Living 7.8x 0.02 13.8% 164.1 90.0% 36.0% 87.7% 17.15
Capital Senior Living 6.6x (0.01) (1.9%) 193.4 76.4% 30.6% 74.9% 14.70
EMERITUS NM 0.76 NM 178.0 83.0% 33.2% 94.8% NM
Sunrise Assisted Living 26.1x 0.54 75.7% 549.0 26.9% 10.8% 76.1% 54.30
</TABLE>
100% Cash Purchase Transaction @ $15.00 per Share(a)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
ACQUIROR EQUITY BRIDGE FORTRESS ADJ. DEBT/ 2001E EPS
2001 P/E 2001 E EPS VALUE @ PRO FORMA PRO FORMA ADJ. BREAKEVEN
POTENTIAL BUYER MULTIPLE ACCRETION/(DILUTION) DEAL PRICE OWN. OWN. MKT. CAP PRICE
--------------- -------- -------------------- ---------- --------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
ALTERRA HEALTHCARE NM $0.40 NM $ 45.6 -- -- 93.6% NM
American Retirement 25.0x 0.51 231.8% 94.3 -- -- 88.6% $22.90
ARV Assisted Living 7.8x 0.50 420.2% 16.4 -- -- 96.2% 22.90
Capital Senior Living 6.6x 0.45 127.6% 45.6 -- -- 87.1% 22.90
EMERITUS NM 0.80 NM 30.2 -- -- 103.6% NM
Sunrise Assisted Living 26.1x 0.40 56.2% 401.3 -- -- 81.7% 22.90
</TABLE>
---------
Note: Companies in bold have negative EPS estimates.
(a) 100% cash purchase transaction assumes a 12% cost of new debt.
[MERRILL LYNCH LOGO] 29
<PAGE> 38
4
<PAGE> 39
PRELIMINARY CONCLUSIONS AND NEXT STEPS
<PAGE> 40
PRELIMINARY CONCLUSIONS AND NEXT STEPS
o Based upon the current public market environment, as well as the
recent trading history for the public companies in the assisted living
industry, it is unlikely that BRIDGE will achieve a premium valuation
in-line with the quality of its assets and operations in the
foreseeable future
o Moreover, BRIDGE is unlikely to find either a strategic or financial
buyer that is both willing and able to pay a price in excess of $15.00
for the outstanding shares of common stock
* Reschke conducted a limited marketing effort
* Since the announcement, no party has called offering a higher
value to the best of our knowledge
o While the $15.00 offered to the Prime Group appears preliminary to
fall within the range of "fairness", the Special Committee and Merrill
Lynch should seek to negotiate with Fortress to raise its offer price
for the remaining shares of common stock
o As part of their immediate next steps, the Special Committee and
Merrill Lynch should determine the optimal strategy for negotiating
with both Fortress and Capital Z. In particular, the special committee
and Merrill Lynch should:
* Establish reasonable and defensible timetable to negotiate and
consummate, if appropriate, a transaction
* Consider whether or not to solicit third party indications of
interest
* Consider publicly announcing the Fortress Proposal and the
retention of Merrill Lynch, particularly if the Special Committee
decides that it is not prudent to actively solicit third party
indications of interest
[MERRILL LYNCH LOGO] 30
<PAGE> 41
PRELIMINARY CONCLUSIONS AND NEXT STEPS
o Negotiations with Fortress and Capital Z should emphasize:
* Justification for higher valuation
* Justification for "avoiding" full auction
* Speed and certainty
o If it elects to purchase negotiations with Fortress and Capital Z, the
Special Committee and its advisors should consider key terms and
conditions of a definitive acquisition agreement, including:
* Price
* Potential majority of the minority vote
* Break-up Fee/Fiduciary Out
* Material Adverse Change definition or other contractual outs
[MERRILL LYNCH LOGO] 31
<PAGE> 42
PRELIMINARY CONCLUSIONS AND NEXT STEPS
<TABLE>
<CAPTION>
STATUS QUO SOLICIT THIRD-PARTY INDICATIONS
---------- -------------------------------
<S> <C> <C>
DESCRIPTION: o Pursue current operating strategy o Pursue a sale to a traditional/real
estate-oriented private equity
firm or a leading assisted living company
o Do not recommend acceptance of
a tender offer for remaining
common shares
BENEFITS: o Use platform to pursue strategic o Process helps create a record of exercising
acquisitions fiduciary responsibilities
o Will help confirm/establish appropriate valuation
</TABLE>
<TABLE>
<CAPTION>
PURSUE A TRANSACTION
WITH FORTRESS (WITHOUT SOLICITING)
---------------------------------
<S> <C>
DESCRIPTION: o Utilize the threat of other options without
actually soliciting third-party indications
in order to extract the highest possible
price per share from Fortress
BENEFITS: o Simple execution and may well lead to
the highest current share price for
minority shareholders
</TABLE>
<TABLE>
<CAPTION>
SOLICIT THIRD-PARTY INDICATIONS
------------------------------------------------------
STATUS QUO FINANCIAL BUYER STRATEGIC BUYER
---------- --------------- ---------------
<S> <C> <C> <C>
CHALLENGES: o Very small equity capitalization o Impact on Fortress o Impact on Fortress negotiations
and float negotiations
o Most likely would use common
o Unfavorable current public o Unlikely to find financial stock as currency; not necessarily
market environment (multiple entities with lower IRR attractive
contraction, reduction in equity requirements than Fortress
values) o Limited multiple advantage (if
o Low investor appetite for any) and few synergies will
o Potential inability to finance investments in the health care inhibit ability to offer a
development pipeline and real estate sectors premium to market price
(Alterra asset sale process)
o Sustainability of o Potential increased leverage on
development/management fees o Limited ability to finance assets
transactions today
o Marginal multiple advantage will o Likely reduction of operating
limit ability to be a o Process will be time margins and asset quality
"consolidator" consuming and require
management focus away o Process will be time consuming
o Potential diminution of asset from operations and require management focus
quality through acquisitions away from operations
PURSUE A TRANSACTION
WITH FORTRESS (WITHOUT SOLICITING)
----------------------------------
CHALLENGES: o Extract additional purchase price from
Fortress while maintaining management
focus on the operations of BRIDGE
</TABLE>
[MERRILL LYNCH LOGO] 32
<PAGE> 43
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
Lodges (Reichmann)
o Blackstone Group o Emeritus (or affiliates) o Holiday Retirement Corp. (or
affiliates)
o Madison Dearborn Partners o Marriott International o Senior Campus Living
o Warburg, Pincus o Crestline o Life Care Senior Corp.
o Code Hennessy & Simmons o ARV Assisted Living o Life Trust
o Walton Street Capital o Capital Senior Living Corp.
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]
<PAGE> 44
APPENDIX
<PAGE> 45
INDUSTRY OPERATING REVIEW
<PAGE> 46
INDUSTRY OPERATING REVIEW
Portfolio Overview(a)
<TABLE>
<CAPTION>
NUMBER OF ASSETS
----------------
<S> <C>
Alterra Healthcare 450
Sunrise Assisted Living 147
Emeritus 129
ARV Assisted Living 58
American Retirement 54
Capital Senior Living 36
BRIDGE 24
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF UNITS(b)
------------------
<S> <C>
Alterra Healthcare 20,714
American Retirement 13,566
Emeritus 11,726
Sunrise Assisted Living 11,635
ARV Assisted Living 7,192
Capital Senior Living 6,101
BRIDGE 5,094
</TABLE>
<TABLE>
<CAPTION>
AVERAGE UNITS PER ASSET(b)
--------------------------
<S> <C>
American Retirement 251
BRIDGE 212
Capital Senior Living 169
ARV Assisted Living 124
Emeritus 91
Sunrise Assisted Living 79
Alterra Healthcare 46
</TABLE>
---------
(a) Based on Form 10-Ks dated 12/31/99. Amounts include all owned, leased,
managed, and unconsolidated joint venture properties that are stabilized.
(b) For American Retirement and Alterra Healthcare, capacity is used instead of
numbers of units. Please note that American Retirement's new development is
considerably smaller at approximately 100 units per project as a result of
its "hub and spokes" strategy.
[MERRILL LYNCH LOGO] 33
<PAGE> 47
INDUSTRY OPERATING REVIEW
Properties Under Construction and Development (a)
<TABLE>
<CAPTION>
NUMBER OF ASSETS
----------------
<S> <C>
Alterra Healthcare 55
Capital Senior Living 23
Sunrise Assisted Living 22
American Retirement 14
BRIDGE 8
Emeritus 6
ARV Assisted Living 3
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF UNITS (b)
-------------------
<S> <C>
Capital Senior Living 3,200
Alterra Healthcare 2,887
Sunrise Assisted Living 1,900
BRIDGE 1,812
American Retirement 1,400
Emeritus 604
ARV Assisted Living 403
</TABLE>
<TABLE>
<CAPTION>
DIFFERENCE FROM
AVERAGE UNITS PER ASSET (b) STABILIZED FACILITIES
-------------------------- ---------------------
<S> <C> <C>
BRIDGE 227 15
Capital Senior Living 139 (30)
ARV Assisted Living 134 10
Emeritus 101 10
American Retirement 100 (151)(c)
Sunrise Assisted Living 86 7
Alterra Healthcare 52 6
</TABLE>
---------
(a) Based on Form 10-Ks dated 12/31/99.
(b) For American Retirement and Alterra Healthcare, capacity is used instead of
number of units.
(c) Please note that American Retirement's new development is considerably
smaller as a result of its "hubs and spokes" strategy.
[MERRILL LYNCH LOGO] 34
<PAGE> 48
INDUSTRY OPERATING REVIEW
Properties Under Construction and Development (cont'd)(a)
CONSTRUCTION AND DEVELOPMENT AS % OF TOTAL ASSETS
[CHART]
<TABLE>
<CAPTION>
ANNUAL AVERAGE
--------------------------------
1997 1998 1999
------ ------ ------
<S> <C> <C>
28% 26% 15%
</TABLE>
<TABLE>
<CAPTION>
PROPERTY 1997 1998 1999
-------- ------ ------ ------
<S> <C> <C> <C>
BRIDGE 28% 25% 26%
Alterra Healthcare 43% 37% 12%
Capital Senior Living 41% 47% 34%
American Retirement 31% 24% 9%
Emeritus 22% 17% 5%
Sunrise Assisted Living 20% 24% 14%
ARV Assisted Living 9% 10% 5%
</TABLE>
----------
(a) Represents units under development or construction as a percentage of total
stabilized units and units under development or construction. Capacity is
used instead of units for American Retirement and Alterra Healthcare.
[MERRILL LYNCH LOGO] 35
<PAGE> 49
INDUSTRY OPERATING REVIEW
Margin Analysis
EBITDAR Margin
[BAR CHART]
<TABLE>
<CAPTION>
1997
------------
MEAN = 24.0%
------------
<S> <C>
BLCI 40.5%
ACR 30.1%
CSU 29.8%
ALI 25.0%
SNRZ 22.9%
ESC 20.5%
SRS 16.0%
</TABLE>
[BAR CHART]
<TABLE>
<CAPTION>
1998
------------
MEAN = 30.7%
------------
<S> <C>
CSU 44.7%
BLCI 42.3%
SNRZ 36.1%
ACR 34.5%
ALI 30.2%
SRS 20.6%
ESC 18.2%
</TABLE>
[BAR CHART]
<TABLE>
<CAPTION>
1999
------------
MEAN = 31.8%
------------
<S> <C>
CSU 47.3%
BLCI 45.2%
SNRZ 33.4%
ACR 31.0%
ALI 29.1%
SRS 26.5%
ESC 23.6%
</TABLE>
Increase in Adjusted EBITDAR Margin from 1997 to 1999
[BAR CHART]
<TABLE>
<S> <C>
CSU 17.5%
SNRZ 10.5%
SRS 10.5%
BLCI 4.7%
ALI 4.1%
ESC 3.1%
ACR 0.9%
</TABLE>
----------
Note: Mean values exclude BRIDGE.
[MERRILL LYNCH LOGO] 36
<PAGE> 50
INDUSTRY OPERATING REVIEW
Margin Analysis (Cont'd)
Adjusted EBITDAR Margin (% of Total Resident Fees and Other Revenues)
[BAR CHART]
<TABLE>
<CAPTION>
1997
------------
MEAN = 21.0%
------------
<S> <C>
BLCI 40.4%
ACR 28.6%
ALI 24.1%
ESC 20.5%
SNRZ 19.1%
CSU 18.4%
SRS 15.5%
</TABLE>
[BAR CHART]
<TABLE>
<CAPTION>
1998
------------
MEAN = 24.2%
------------
<S> <C>
BLCI 37.6%
SNRZ 29.0%
ACR 28.3%
ALI 28.1%
CSU 21.8%
SRS 19.9%
ESC 17.8%
</TABLE>
[BAR CHART]
<TABLE>
<CAPTION>
1999
------------
MEAN = 24.5%
------------
<S> <C>
BLCI 41.3%
ACR 26.5%
SRS 25.9%
CSU 25.8%
ALI 24.2%
SNRZ 23.9%
ESC 20.5%
</TABLE>
Increase in Adjusted EBITDAR Margin from 1997 to 1999
[BAR CHART]
<TABLE>
<S> <C>
SRS 10.4%
CSU 7.4%
SNRZ 4.8%
BLCI 0.9%
ALI 0.1%
ESC 0.0%
ACR (2.1)%
</TABLE>
----------
Note: Mean values exclude BRIDGE.
(a) Excludes development and management fees.
[MERRILL LYNCH LOGO] 37
<PAGE> 51
INDUSTRY OPERATING REVIEW
Margin Analysis (Cont'd)
Total Ancillary Fees(a) (% of Pretax Income)
[BAR CHART]
<TABLE>
<CAPTION>
1997
------------
MEAN = 70.0%
------------
<S> <C>
SNRZ 111.0%
ALI 74.6%
CSU 52.2%
ACR 34.0%
BLCI NM
ESC NM
SRS NM
</TABLE>
[BAR CHART]
<TABLE>
<CAPTION>
1998
------------
MEAN = 62.8%
------------
<S> <C>
SNRZ 81.0%
ACR 77.0%
CSU 64.5%
BLCI 57.5%
ALI 28.8%
ESC NM
SRS NM
</TABLE>
[BAR CHART]
<TABLE>
<CAPTION>
1999
-------------
MEAN = 112.0%
-------------
<S> <C>
ALI 176.8
SNRZ 111.2
ACR 83.4
CSU 76.4
BLCI 38.2
ESC NM
SRS NM
</TABLE>
Increase in Total Ancillary Fees(a) (% of Pretax Income) from 1997 to 1999
[BAR CHART]
<TABLE>
<S> <C>
ALI 102.2%
ACR 49.4%
BLCI 38.2%(b)
CSU 24.2%
SNRZ 0.2%
ESC NM
SRS NM
</TABLE>
----------
Note: Mean values exclude BRIDGE.
(a) Includes development and management fees.
(b) In 1997, BRIDGE had $0.1 million of ancillary fees and ($0.4) million of
pre-tax income. For illustrative purposes, this figure replicates BRIDGES's
figure for 1999.
[MERRILL LYNCH LOGO] 38
<PAGE> 52
ADDITIONAL INFORMATION REGARDING BRIDGE
<PAGE> 53
ADDITIONAL INFORMATION REGARDING BRIDGE
BRIDGE One-Year Stock Price Performance
SUMMARY DATA
<TABLE>
<CAPTION>
HIGH LOW MEAN
------ ------ ------
<S> <C> <C> <C>
30 Trading Days $13.75 $10.75 $12.92
3 Months 13.75 10.63 12.35
6 Months 14.44 10.63 12.70
Prior to Offer 15.06 10.63 13.06
1 Year 15.06 10.63 13.05
</TABLE>
APRIL 20, 2000:
BRIDGE announces that The Prime Group and certain of its affiliates have agreed
to sell 3.9 million shares of common stock to Fortress for $15.00 per share.
BRIDGE stock price climbs from $11.50 on April 20th to $13.25 on April 24th.
[CHART]
[MERRILL LYNCH LOGO] 39
<PAGE> 54
ADDITIONAL INFORMATION REGARDING BRIDGE
One-Year Trading Volume Analysis
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 14.8%
$11.00-$12.00 9.5%
$12.00-$13.00 28.4%
$13.00-$14.00 26.2%
$14.00-$15.00 20.7%
$15.00-$16.00 0.4%
</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 14.8%
$12.00 24.3%
$13.00 52.7%
$14.00 79.0%
$15.00 99.6%
$16.00 100.0%
</TABLE>
----------
Note: Volume traded based on daily closing stock prices.
[MERRILL LYNCH LOGO] 40
<PAGE> 55
ADDITIONAL INFORMATION REGARDING BRIDGE
Trading Volume Analysis Since IPO
PERCENT OF VOLUME WHICH TRADED IN STOCK PRICE RANGE
[CHART]
<TABLE>
<CAPTION>
SHARES TRADED PRICE PER SHARE PERCENT
------------- --------------- -------
<S> <C> <C>
$10.00-$13.00 28.2%
$13.00-$16.00 31.2%
$16.00-$19.00 23.4%
$19.00-$22.00 8.1%
$22.00-$25.00 4.4%
$25.00-$28.00 3.4%
$28.00-$30.00 1.2%
</TABLE>
PERCENT OF VOLUME WHICH TRADED BELOW STOCK PRICE RANGE
[CHART]
<TABLE>
<CAPTION>
CUMULATIVE
SHARES TRADED PRICE PER SHARE PERCENT
------------- --------------- -------
<S> <C> <C>
$13.00 28.2%
$16.00 59.4%
$19.00 82.9%
$22.00 91.0%
$25.00 95.4%
$28.00 98.8%
$30.00 100.0%
</TABLE>
----------
Note: Volume traded based on daily closing stock prices.
[MERRILL LYNCH LOGO] 41
<PAGE> 56
ADDITIONAL INFORMATION REGARDING BRIDGE
ESTIMATED COST BASIS OF TOP INSTITUTIONAL SHAREHOLDERS
<TABLE>
<CAPTION>
Current Estimated
Holdings(a) Cost
(in 000's) Basis(b)
----------- ----------
<S> <C> <C>
Goldman Sachs 900.9 $14.63
Becker Capital Management 810.7 15.52
Dimensional Fund Advisors 489.9 15.42
First Union 489.3 14.57
AXE-Houghton Associates 283.5 13.31
----------
Total Shares of Top 5 13-f Institutional Shareholders 2,974.3
Percentage of Total Common Shares(c) 31.4%
</TABLE>
----------
Note: During the first quarter of 2000, Delaware Capital Management sold
approximately 900,000 shares of BRIDGE common stock for less than $11.00 per
share, according to BRIDGE management. Management stated that the primary
purchasers of Delaware's shares were K Capital and Goldman Sachs. This purchase
has not been reflected in the figures above. In addition, the Commonwealth of
Pennsylvania Public School Employees Retirement System owns an additional
629,600 shares.
(a) Based on most recent available public filings.
(b) Assumes that shares are purchased at the average share price during the
three-month period in which the shares were acquired. Assumes that shares
are sold at the average cost basis at the time of sale.
(c) Based on 9.475 million common shares outstanding per Form 10-Q dated March
31, 2000.
[MERRILL LYNCH LOGO] 42
<PAGE> 57
ADDITIONAL INFORMATION REGARDING BRIDGE
Income Tax Position
(Dollars in Millions)
- BRIDGE has current NOLs of $6.0 million, which Merrill Lynch assumes
are used ratably over the projected period.
<TABLE>
<CAPTION>
2000 2001 2002 2003 2004
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
NOL Usage $1.2 $1.2 $1.2 $1.2 $1.2
Tax Rate 36.0% 36.0% 36.0% 36.0% 36.0%
----- ----- ----- ----- -----
Implied Tax Shield 0.4 0.4 0.4 0.4 0.4
Present Value at a Discount Rate of 12.0% $0.4 $0.3 $0.3 $0.3 $0.2
NPV OF NOLS $1.6
</TABLE>
[MERRILL LYNCH LOGO] 43
