Brookdale Senior Living Inc (BKD) 2006 Q4 法說會逐字稿

Good day and welcome to today's Brookdale Senior Living year-end earnings conference call. Today's call is being recorded. For opening remarks and introductions, I would like to turn the call over to Francie Nagy. Please go ahead.

Thank you, Tricia, and good morning, everyone. I would like to welcome all of you to the fourth-quarter and year-end 2006 earnings call for Brookdale Senior Living. Joining us today are Bill Doniger, our Vice Chairman; Mark Schulte, our Co-CEO; Mark Ohlendorf, our Co-President; and Stan Young, our Chief Financial Officer.

Before I turn the call over to Bill, as Tricia mentioned, this call is being recorded and the replay number is 888-203-1112 from within the United States or 719-457-0820 from outside of the United States with an access code of 843-5976. This call will also be available via webcast on our website, www.brookdaleliving.com.

I would also like to point out that statements today which are not historical facts may be deemed forward-looking statements. Actual results may differ materially from the estimates or expectations expressed in those statements. Certain of the factors that could cause actual results to differ materially from Brookdale Senior Living's expectations are detailed in our SEC reports. I directed you to Brookdale Senior Living's earnings release for the full forward-looking statement legend.

Now I would like to turn the call over to Bill Doniger. Bill?

Thanks, Francie. 2006 really was an exceptional year for Brookdale. We achieved fantastic growth both organically and through acquisitions. Given our success or given an increase by 80% to $1.80 per share from $1.00 annualized in the fourth quarter of 2005.

On the acquisition side, as you know, we acquired about $3.6 billion in assets in companies, invested about $1.6 billion of equity since the IPO. The highlight of all that obviously being the American Retirement transaction that was completed this past summer. That was really a transformational deal, putting Brookdale into kind of the next phase of its life, expanding the services through the CCRC business and ancillary services and really positioned us for lots of growth that I am about to talk about.

Organically kind of similar results which we think were outstanding. Year-over-year same-store revenue growth of 6.6% resulting in NOI growth of 11%. So really from all parts of our business we could not have been more happy.

With respect to the fourth quarter, we reported CFFO of $0.33 a share. We think that does not really reflect the true run rate of the business as there was a variety of kind of onetime non-recurring costs in there that Mark Ohlendorf will talk about in a little bit. Net-net we think there was about $0.06 of onetime activity, so internally we think about the quarter roughly $0.39 a share, which is in line with really our own internal expectations.

Given the amounts of activity we enjoyed in 2006, the results of that is there is a bit of noise in our financial statements in the form of kind of non-recurring activity and I want to take a moment really for this year-end call to take a step back and talk about our business from the kind of financial metrics that we think about that hopefully will create a little more transparency as we go forward.

From a financial perspective it should be relatively straightforward. Obviously the big driver of the business is net operating income. Over the last few years we were running on a same-store basis of about 10% with very little of that coming from occupancy. It is mostly rate. We remain very optimistic about our prospects for the company going forward.

The next line item is overhead, G&A. Right now we're running roughly around 5% in revenues which we think is a little high, but given the amount of activity we enjoyed in 2006 from acquisitions of integration, we think the expense load for the company is appropriate. Over the next year or so we do not think that is coming down at all, but longer-term we think the business should be run closer to 4% of revenues. But again over the next year we don't really see that changing.

Next line item is capital expenditures. We spent a fair bit of money on our acquisitions to bring the assets that we buy to a level that we think makes sense in order for us to be kind of the price leader in our markets. I think in 2006 we invested about $75 million in kind of refurbishments. But ongoing capital is in the area of $500 to $550 per unit that we owe or lease and we think that is going to be reasonably consistent going forward.

The next item is ancillary services, which is the new part of our business. We've been doing it a fair bit at the old American Retirement. Historically the old ARC was earning about $160 per month of operating income per occupied unit. They were able to do that given the large number of CCRCs which have tremendous economies of scale and have been operational providing these services for a number of years. So out of the block at the new Brookdale, we don't expect to earn that full $160, but over time we're reasonably optimistic.

Just in the second half of 2006, we rolled out about -- ancillary services in about 4000 facilities. It would be our expectation to rollout services in another 8000 Brookdale facilities in 2007 and a further 8000 in 2008. We think we will earn roughly $50 per month per occupied unit in these new facilities in the first year with the run rate toward the end of the first year being closer to $100. Again, over time, we're optimistic we would get closer to the old ARC $160, but given the startup nature with operating losses, it takes a bit of time to get there.

The last line item in our financial metrics is capital deployments. We will be focused moving forward really on one-off acquisitions, repurchases of leased properties. Probably the new and best exciting opportunity we have is expansion. So this is not to say the development pipeline is opening up. We have one development that Mark will talk about which we think will be a home run, but really what we're talking that here is expansions of existing assets where we have land that are full and we think the return on invested capital is very, very attractive with relatively low risk.

Again, Mark Ohlendorf will talk about the details. But our first phase I think we have about 60 assets identified with maybe 2000 units.

If you take all of those financial metrics I just discussed and apply them to our financial P&L, would result in 2007 cash flow per share in the area of $2.10 to $2.20. Again, there's obviously risk to operating businesses, but these are numbers we feel pretty good about.

Assuming similar organic growth in 2008, we would generate cash flow growth in excess of 30%, which would generate cash flow for per share of in excess of $2.75 per share for the year on a run rate basis. That would put us over $3.00 a share toward the second half of 2008. So this excludes really the impact of any acquisitions or expansions. Mark Ohlendorf again will talk about the expansion opportunity. We will start deploying capital this year, but the real results in that business don't show up really till 2009 and we think the enhancement in our cash flow is going to be material on the order of $0.30 a share.

So pretty exciting stuff with fantastic growth prospects for our company. Obviously there's some risks to getting the numbers. It is an operating business, but the primary driver of the success that Brookdale will have in hitting the numbers will really be on execution. We're not relying on a lot of capital from acquisitions. It is primarily an organic opportunity and again we are very excited about it.

With that, I'll turn it over to Mark Schulte.

Thanks, Bill. And I would like to spend a few minutes talking about our ancillary services and core operations. As you know, Brookdale is the largest operator of senior living in the United States with 546 locations and we now serve over 51,000 residents with over 33,000 associates in our company.

As Bill mentioned, we acquired the leading ancillary services platform in the senior living industry through the ARC transaction, which is a major component of our future growth and we have begun to rollout these services in the legacy Brookdale facilities. I would like to highlight some of the work we're doing on that front and share with you the sound progress we are making.

Legacy ARC ancillary business is strong, contributing $158 of monthly facility operating income per occupied unit in Q4 of 2006, which is similar to the $155 to $160 per unit that we have achieved in the previous three quarters. We already started providing therapy services in approximately 40 legacy Brookdale communities with about 4000 units. We have a detailed market by market rollout plan and expect to roll out to another 8000 units during 2007 and about the same number in 2008.

As we enter more markets over the next year, we will have startup expenses toward as these services ramp up, but we expect to generate 30% plus margins as the clinics mature over a 12 to 18 month period, which matches the ARC historical results.

The number of clinics that we have has increased to 225 and was at 186 at the end of 2006 and we now employ over 1000 therapists. And at the end of Q4 we employed 935, so you can see some good growth there. That is up from 836 therapists in Q3 and 693 in Q1.

Another element is ancillary services that we have discussed is delivering licensed home health to our own residents. It is currently being done by outside third parties in many of our communities. As a general rule, it entails therapy about one-third of the time. In February, we made an acquisition of a home health agency for $3 million that was serving about 2000 of our residents, primarily in the Tampa, Florida area. It owns agency licenses in five markets in Florida, south from Orlando covering both coasts. This acquisition allows us very quick entry into the high barrier Florida market where we already operate nearly 80 facilities that use similar services in some form. In addition, the acquisition is priced at a very attractive high teens cash on cash yield.

As far as our core operations, the underlying supply/demand fundamentals for our business remain very favorable. Demand remains robust, as evidenced in our high occupancy and our ability to increase market rates. We do not see any major industrywide new construction activity. As a result, operations continue to perform well with stable occupancy, increasing rates, and strong year-over-year same-store growth.

Overall occupancy was 91% and average monthly revenue per unit was $3402, both of which were higher than Q3 which had occupancy of 91% and a rate of $3319 a unit. Same-store revenue growth including the ARC facilities was 6.6% and FOI increased 11% for the full year 2006 over 2005.

We had strong entrance fee sales this quarter from our 10 entry fee communities which illustrates our point from last quarter's earnings call that while these entrance fees are not easily predictable and can be lumpy quarter-to-quarter, these are attractive communities whose units resell consistently and predictably over longer periods of time.

In addition to strong organic growth, we continue to focus our growth through accretive acquisitions as well as a new initiative of doing expansions at existing facilities.

With that I would like to turn things over to Mark Ohlendorf, who will go over the expansion opportunities and our integration activities. Mark?

We continue to focus substantial resources on our integration activities. These efforts are focused on three fronts. First, completing the integration of American Retirement Corporation and the other acquisitions that we closed in 2006. Second, positioning our infrastructure platform to continue to execute on our acquisition and development growth plans. And three, to further take advantage of best practices and operating efficiencies within our existing business.

We currently estimate that we will spend in the range of $25 million in 2007 on these integration and infrastructure development activities including our corporate branding programs. And again, as Bill mentioned, we will also spend roughly $75 million in 2007 related to our acquisition CapEx, our ancillary service rollout, and other major capital projects within the portfolio.

Turning to our fourth-quarter results, as Bill noted, our fourth-quarter CFFO of $0.33 per share does not necessarily reflect our recurring run rate cash flow. This is due primarily to our acquisition and integration work and our startup business activities.

The total impact of these items on our reported CFFO is about $0.06 per share. These items include, first in our reported G&A costs, there are $6.5 million or approximately $0.06 per share of acquisition and integration costs. Again these costs relate primarily to system and process integration work and also to the work we have done to achieve Sarb-Ox compliance.

There are two other less significant items in the fourth-quarter results, each roughly $0.01 that offset each other. First we have around $900,000 or $0.01 a share of startup losses related to our ancillary business rollout and to employee training activities for the communities that we have acquired in the last year.

Offsetting that, related to our year-end and quarter-end close, we recorded non-cash changes in estimates that totaled a net addition to CFFO of approximately $1.1 million or $0.01 per share. The largest of these items relates to a nonrecurring benefit of a liability accrual reversal from the old Alterra bankruptcy. Again, the net impact of these items is roughly $0.06 per share on our fourth-quarter CFFO results.

Our net entrance fee results in the fourth quarter were strong, netting $11.8 million. Entrance fees like CapEx can be somewhat blocky as we go from quarter to quarter and we tend to look at them over a longer period of time. As we look forward to the first quarter of 2007, we expect net entrance fees to be lower than that level experienced in the fourth quarter, although we believe that full year 2007 will produce normalized net entrance fee results.

In addition as we discussed before, the timing of some of our expense increases tend to be front loaded in the calendar year while our revenue pricing increases tend to be distributed more evenly throughout the year. This results in a normal pattern of lower earnings in the first quarter than later in the year.

Bill mentioned in his introductory remarks that we've begun to formalize an expansion plan that we will start to execute on in 2007. While we're continuing to refine this plan, we have initially identified 60 communities where our expansions and the development of one CCRC would add around 2300 new units to the Brookdale portfolio. This program is currently estimated to involve more than $500 million of project costs and we forecast that we'll incur roughly 20% of this amount in 2007, 45% of the amount in 2008, and 35% of the amount in 2009.

Approximately 70% of the planned additional units are at owned facilities while 30% of the planned expansion units are at leased locations. Properties are identified for expansion for a variety of reasons including, one, the existing property is full and adding capacity to the product type will take advantage of the existing market demand. Second, the addition of another level of care or service type would create a more comprehensive service offering in a core Brookdale market. Or third, in isolated cases, we would extend into a new market.

ARC had several expansions under way prior to our merger in July of last year and over the last three months we have opened four of these expansions with a total of 190 units. Our single market extension is our development of a CCRC into villages, a senior oriented planned development outside of Orlando, Florida. Many of you know doubt have seen Nancy Lopez speaking about the villages on television advertising during golf events.

Our facility will be the only retirement center within the confines of the villages which has a population of more than 50,000 seniors, many of whom have now aged to the point that they are quite interested in our property. Our pre marketing activity is going very well and we have more than 260 initial priority deposits. We also have 1750 seniors in the inquiry database for this project.

Our CCRC project in the villages is a $115 million development. It includes 160 independent living units, 47 assisted living units, and a 60 bed SNF. Our site planning in the villages also contemplates a possible Phase II, which would add up to an additional 280 independent living units. On average, these expansions take six to 18 months to construct, of course depending on the project size. The expansions are projected to stabilize in around 12 months and produce unleveraged yields of 12% to 15%.

Based on our existing borrowing costs, which now run around 6.5%, using 65% leverage on cost and based on our 2007 CFFO performance goals, every $100 million of expansions that we complete over the next several years will add $0.05 to $0.10 per share of CFFO to our results as these project stabilize. While we expect some of these expansion projects to open in 2007 and 2008, the beginning of the accretive impact of this program is largely in 2009.

I will now turn it over to Stan Young, our CFO, who will give us some more color on the fourth-quarter results.

Thanks, Mark, and welcome, everyone. For Q4 2006, resident fees were $429.8 million and total revenue was $432.3 million and a net loss of $37.4 million. Included in our net loss was approximately $96.9 million of non-cash charges for depreciation and amortization, stock compensation expense, and straight line lease expense net of deferred gain amortization.

G&A expenses were $44.4 million, which includes $14 million of non-cash stock compensation and estimated nonrecurring expenses of $6.5 million for the quarter. Also during the quarter we incurred additional G&A as a result of increased budgeted overhead in connection with the recent acquisitions.

As we look at the results, I would like to focus everyone on the key metrics that management and the Board focuses on in evaluating the business; cash from facility operations, adjusted EBITDA, and facility operating income. As mentioned earlier, cash from facility operations was $33.7 million or $0.33 per outstanding share at December 31, 2006. Again, included in that number was $6.5 million of nonrecurring expenses.

Adjusted EBITDA was $66.5 million and facility operating income was $148.7 million with an operating margin of 37%. As Bill mentioned earlier, including historical ARC results, same-store revenues increased approximately 6.6% and facility operating income improved 11% for the year ended December 31, 2006 over 2005. Adjusted EBITDA and cash flow from facility operations included the nonrecurring expenses of $6.5 million.

Capital expenditures. Recurring capital expenditures was $8.5 million in Q4 net of reimbursements. Other capital expenditures include EBITDA enhancing and corporate expenditures of $10.8 million and development CapEx of $9.0 million. At year-end, our balance sheet was strong. Our cash position was $68 million. And subsequent to year-end, in January, we obtained $130 million of first mortgage financing in connection with the NHP acquisition that closed in November and the purchase of a small facility of our venture partners interest in a small facility in Flint, Michigan.

We also entered into an interest rate swap to convert the loan from fixed to floating. As a result of these financings and other cash activities, our line balance has decreased from $163.5 million at December to $76 million as of today.

In summary, we are pleased with our results and look forward to 2007. Now I would like to turn the call back to Bill for questions.

Tricia, if you can open to the group, [we will now take] questions.

(OPERATOR INSTRUCTIONS) Kevin Fischbeck, Lehman Brothers.

I was wondering if you could talk a little bit about your decision not to raise the dividend this quarter? It looks like the company is providing a bit more guidance than you have historically and I know historically you have used the dividend as kind of a form of guidance. I guess can you just talk about how you think about the dividend now going forward now that you seem to be providing guidance in a separate manner?

Sure, Kevin, it's Bill. We tried to give little sense of where we were going prospectively just given the nature of a lot of activity in the financials given a lot of acquisitions. And so kind of felt that would be helpful to investors. In terms of the dividend, as Mark Ohlendorf said, the first quarter is typically our weakest quarter because you have some occupancy declines in the first quarter historically. You incur a fair bit of expenses and at the same time your rate increases occur over the course of the year. But as I said, we feel pretty good about the results of $2.10 to $2.20 for the year. So it would be reasonable to assume that the dividend will be a topic of conversation at our subsequent Board meetings.

Okay and I guess the new disclosure here which sounds pretty interesting is the bed expansions and I appreciate you provided a lot of color and answered a lot of questions that I had coming into the call. But for the facilities that are leased when you're doing the expansions, how are those financed? Is that going to be financed through additional lease expense or how does that work?

That's an interesting question. Obviously for the owned assets we will just finance probably off our line, get them stabilized and potentially refinance all of the asset with Fannie or Freddie or other providers of first mortgage assets. With respect to the leased assets, it is an interesting dynamic because we are going to theoretically improve an asset that we don't own, so the nature of the capitalization, if you will in those expansions at some level is a bit of a negotiation with each of our respective landlords, but it is something that we are -- we being Brookdale and our landlords are both incentivized to do, and so it is more of a negotiation that we will figure out something that works for both of us.

But as Mark said, 70% of our expansion in the first phase -- because I think there is more to do here -- are owned assets, so that is something we can focus on and it will keep the folks pretty busy.

I guess obviously the midteens type returns are pretty attractive so that may be the answer, but historically the company has chosen to grow beds through acquisitions. Is there a change in the environment at all that led you to kind of look at this more closely than you have in the past? And should we still be looking for as many acquisitions as we had in the past or is this going to take up a lot of the internal resources?

You know, Kevin, the expansion or acquisitions are not mutually exclusive. Look, to invest capital at unleveraged 15% returns, we would rather do that than buy assets at lower returns. But that being the case, we think we can still buy assets at while lower unleveraged returns still attractive and so it is not mutually exclusive. But obviously higher returns are better than lower returns.

Okay, then I guess one last question. The guidance that you provided, I just want to make sure I understand the numbers that you provided, Bill. They include the $25 million that we earlier talked about as far as integration costs in that [25] number or was that number kind of excluding those -- that 25?

That $25 million is more of a one time, so I think that excludes that but normal CapEx and everything else that we are talking about is included.

Okay, great. Thank you.

Jerry Doctrow, Stifel Nicolaus.

This is actually [Dan Bernstein] filling in for Jerry. I was hoping to get a little bit more color on the acquisition versus development.

Jerry, can you speak up a little bit? We can't hear you.

Sure, I'm actually getting a little static here. I'm not sure if you hear me. I wanted to get look a little bit more color on the acquisition versus development in terms of are you -- you said you are seeing deals that are accretive or can be done. Are you seeing cap rates come down? Are you seeing large deals come across your desk that you're interested in?

You tailed off at the end. I think your question is regarding acquisitions, are we seeing stuff that's accretive versus build? Accretive, we can buy lots of things that are accretive. That does not mean that necessarily from a risk-adjusted return perspective they are good investments, but we are seeing prices have gone up. Cap rates have gone down. The mass still works for us, but we have probably turned down a few things more recently or not stretched for things more recently because we have not had to.

Again, the numbers we laid out here over the next couple of years it's really for the foreseeable future, if we execute on our own assets, the returns are fantastic. 30% plus cash flow growth which is a function more of execution of your own stuff is pretty good.

So from that perspective, we have been more internally focused. As I just said to Kevin, we will still buy assets if we like them and we will expand assets because unlike the old development where you are filling up an asset, it is a much better return and risk-adjusted return to expand existing assets. It is something that we had talked about doing, thought about doing, and really just kind of getting around to it now. So it is-- we think it is a great opportunity.

It does not mean we will not buy assets, but again, we don't have to do much from an acquisition perspective to generate pretty attractive returns and dividends in excess of $3 a share in the next few years. So that is what we're focused on.

Okay, on the $6.5 million in integration costs, is there a breakdown on that in terms of -- is that all G&A or is that somewhere else?

I'm sorry, Jerry, the $25 million?

The $6.5 million of integration costs in the fourth quarter.

The $6.5 million is primarily integration related costs in the quarter, so it is going to include -- we obviously used some outside resources particularly in the information technology area. There is some technology spending that occurs in terms of hardware and so forth. I believe we also had probably over $1 million in the quarter related to our final SOX work. But the lion's share of it would have been integration related. It is all in the G&A number, if that was your question.

Yes. And then there's going to be another $25 million of nonrecurring costs in '07, is that right?

That is what we're forecasting right now for 2007. Now that includes the integration costs comparable to fourth quarter. It also includes a very broad rebranding program across the company. We have over 250 of the old freestanding AL properties and the ARC properties where we are working on merging our branding strategy. So that is part of plan for '07 as well.

Okay, you actually just hit one of my questions. Then do you have any same-store occupancy in rates? I'm not sure if I heard that.

We do. Actually in the press release we reference an 11% year-over-year NOI growth, 6.6% year-over-year revenue growth. That is a hybrid number that includes Brookdale proper and pro formas in the ARC same-store portfolio as well. In that portfolio, the revenue growth up 6.6% is 70 basis points of occupancy in the balances rates. In the standalone without ARC, the growth on the revenue side is 7.5%, 1% of which is occupancy related and the facility operating income growth is 13.8%. Again those are year-over-year numbers.

Okay. Then on the CapEx if you take your CapEx per unit for all of those 6 -- that was like $650 a unit, so you are expecting that to come down a little bit in '07, is that right?

Again, as we said, things like CapEx and entrance fees are a little bit blocky as we go through the year.

But on average probably 50 would be okay?

I think so. The fourth quarter number was clearly a little higher but in the third and fourth quarter you're doing more projects because the weather is nicer, for example. So I don't think we would change our view of recurring CapEx.

Okay, that's all the questions I have. I will let other people ask some.

Dennis Maloney, Goldman Sachs.

Bill, in addition to the $25 million that you'll be spending on the onetime integration costs, what do you think you'll spend on the startup expenses related to the ancillary services business in '07?

It's Mark O. here. Actually that $75 million number does include some rollout CapEx for the ancillary service business. In many cases we will do refurbishments of a large property to extend our therapy programs, so that is included in that number. From a startup loss standpoint, you know in this last quarter our startup locations for therapy lost about $600,000. We will actually see a little bit of an acceleration in the opening pattern here, but again this is all aggregating into the discussion that we had about the ancillary services, trying to recall exactly what Bill had talked about on the ancillary segment.

$50 really for the year, it is really a growth in the occupancy netting the losses. We don't probably have that at our hands what the --.

Yes, the $50 number nets the startup costs into it, so we will get back to you with kind of a revenue and expense of that so you can see the pre netting numbers.

Great, thank you. Then just for 2006, it looks like you generated about $18 million of cash flow from changes in working capital. Is it fair to say that this business by itself right now generates working capital and what do you think you could generate in '07 on this basis?

Again it's Mark O. The senior living business standalone likely would generate working capital. We are growing our ancillary service business here and that is a business that does involve some working capital. So I don't believe necessarily that the same experience you saw in '06 would hold in '07 as ISE rolls out.

Okay, and then your roughly $100 million of a first-quarter '07 acquisitions, I'm just curious how did you source these? I did not hear -- I apologize if you said it, but how do you plan on financing them?

I think we finance them with Fannie Mae and those were leased assets, so I would say that we try to buy back -- obviously it's a price conversation, but we know who the owners are.

Okay, then just lastly, could you just comment on the benefit for income taxes? What is that all about?

Yes, in connection with the acquisition of some of our companies, most notably ARC, they have carryover basis for tax purposes. However for GAAP purposes, we step them up to fair value. So as those losses roll through depreciation and amortization, we recognize a tax benefit for GAAP purposes, no cash benefit. It is purely a GAAP non-cash item.

Lastly, your NOLs, where do you stand on those right now?

Roughly about 125 to 150.

Great, thank you.

Matt Ripperger, Citigroup.

Thanks. This is Jie Bao from Matt Ripperger's team. A couple questions here. Just on the outlook in terms of pricing trends excluding the ancillary services contribution, what kind of pricing trend are you seeing for '07?

Well, if you look the same-store numbers in '06, you are seeing pricing growth in the 5.5% to 6% range and I don't believe the outlook for '07 would be much different from that.

Okay and the accounts receivable, do you have the number for the end of the quarter?

I do not have it in front of me. We will be filing the K later this week.

Okay, is that going down to a more normalized level or is it still some working capital --?

We actually did make a fair amount of progress in the fourth quarter on the receivable side as the integration work progressed. Again, I'm not sure we should reference that number until the K is filed but you will see some progress on that front.

Okay and just last question, I was wondering if you can comment the recent holiday retirement transaction and whether that in any way has any benefit to Brookdale in terms of operations, savings or on the cost side.

You know, it is a separate investment. The management teams could talk about joint purchasing that kind of stuff, but nothing is really happening there at this point.

Okay, thanks.

(OPERATOR INSTRUCTIONS) Peter Lux, Smith Barney.

I have Bill (indiscernible) on the call; I just want to say hello. Is there any -- do you work with some kind of percentage or formula basis relative to sort of a ratio between where the cash flow as you project for 2010 and 2020 versus where the dividend rate might be?

There is not a fixed ratio. We try to pay out substantially all, a number in the area of 90% has been what we started out when we went public, but we also look at our prospects, growth going forward. So it is unfortunately not as formulaic as you are referring to, but substantially all is what we shoot for.

Okay, as it relates to the Brookdale legacy as it ramps up ancillary services, are those the margins you're talking about when you get up to full speed in altitude similar to what you got out of American Retirement?

Yes.

So that is in the what, 40% range did you say?

30%. Closer to 30.

30%, okay, thanks.

Jerry Doctrow, with a follow-up.

This is Dan Bernstein with a follow-up. I was wondering what the fee structures were on the small JV? Were there -- are you getting any management fees from that?

The JV structure that small deal, we probably lost a little bit of management fees. I'm asking the question -- it's immaterial though.

Would you consider doing more JV's in the future or is that just something you'd rather not do?

In general I think that it is not something we are targeting to do. Obviously you can kind of enhance your equity returns by leveraging capital through management fees, so you could make it work from a financial engineering perspective, but we would rather deploy more capital at good prices and generate returns and use our capacity with our own capital. So probably not.

Okay and I've got one other question here. Is there a lease rate you have on the 1Q '07 buyout of the $1 million properties, something I can back into?

Can you say that louder? We are having trouble hearing you.

I'm sorry, is there an existing -- is there a lease rate on the 1Q '07 buyout that I could back in and figure out what the benefit will be for you?

You know, I don't have that right in front of me here. We could follow-up. On the old basis, there is a lease payment that went away.

I could call you after off line. That will be all for me.

(OPERATOR INSTRUCTIONS) Gentlemen, it appears there are no further questions in the queue at this time.

Okay, thank you.

Thank you. This does conclude today's conference call. You may disconnect at this time.