Brookdale Senior Living Inc (BKD) 2007 Q2 法說會逐字稿

Good day and welcome to today's Brookdale Senior Living second quarter earnings conference call. Today's call is being recorded.

For opening remarks and introductions, I would like to turn the call over to Ms. Francie Nagy. Please go ahead.

Thank you, Cindy, and good morning, everyone. I'd like to welcome all of you to the second quarter 2007 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 Chief Financial Officer, and Bryan Richardson, our Chief Accounting Officer.

Before I turn the call over to Bill, as Cindy mentioned, this call is being recorded and the replay number is 888-203-1112 from within the U.S. or 719-457-0820 from outside of the U.S. and the reference access code 5743253.

This call will also be available via web cast or on our website, www.brookdaleliving.com.

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

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

Thanks, Francie. Well, we had another solid quarter of growth with reported CFFO before adjustments of $0.42 per share, which is a 27% sequential increase over the first quarter 2007 reported CFFO of $0.33 a share.

In executing our business plan, the key operating metrics that we focus on to see how we're doing is same-store net operating income growth and the pace at which we continue to provide more services to our customers, what we call ancillary services. In both of those cases, we've had a really strong quarter and first half of the year.

Let me elaborate. Same-store revenue increased 6.9% for the trailing 12 months ended June 30. Net operating income increased 9.7%, and margins improved to nearly 37% for the same period. Our revenue growth was driven primarily by rates as occupancy levels stayed constant during the first half of the year at about 91%. Again, we think about the business on a kind of long-term basis that we hope to grow same-store NOI somewhere between 8% and 10%, so our 9.7% result for the quarter, you know, is in line and at the high end of where we hoped to be, so from that perspective, we feel great about things.

In terms of ancillary services, it's been really nothing but good news. We've had tremendous success with the rollout of ancillary services to our legacy Brookdale units. You know, as we told you at the beginning of the year, our objective was to reach about 12,000 Brookdale units by year-end. Halfway through the year, we are providing services to over 14,000 Brookdale units. Again, those services are things like speech, occupation and rehabilitation therapy, and additionally, we're starting to provide home health care services.

We also hope to earn about $50 per month per occupied unit in those services in the first year that we provide them, and for the facilities we opened in 2006 at Brookdale, we are on track with that result as well. So again, we feel great.

As importantly, the old American Retirement asset, they began providing home health services, which Mark Schulte will talk about, which has taken monthly ancillary income per occupied unit from about $150 per month up to nearly $200 a month, so really some fantastic success in that part of our business.

Obviously from the press release, the one part of our business that has remained -- or is soft in the first half of the year is entrance fees. To put it in perspective, entrance fees are less than 10% of our company's unleveraged cash flows and probably are the one part of our business that we think is tied to a little bit of the housing market. The customer who makes a decision to get into the entrance fee part of our business is a cautious one, it seems like more so than a rental customer, and they typically wait to sell their house before they want to move into our facilities. It is taking longer for them to sell their houses. As a result, the timing of those entrance fee cash flows have been extended.

That being said, we see positive momentum over the course of the year and remain optimistic that those numbers will get back to where they should be over time, and Mark Schulte will talk a bit about that.

In terms of where we are at this point in the year, given what's happened on the entrance fee side, it would be difficult for us, absent a material improvement in the entrance fees over the second half of year, to hit our full-year expectations. That being said, we remain extremely confident that the second half of the year will be consistent with our expectations. Specifically, given the growth trajectory of this company, we are quite comfortable where we think we will be on a run-rate basis for the end of the year, which again, is a meaningful amount of growth from where we sit today.

In conclusion, I guess the point we want to make is our business remains strong. It's an incredibly diverse business plan in a market where supply and demand remains in check. We have a number of ways to make money and deliver returns to our investors, and we, again, are extremely confident that we can continue to provide stable growing cash flow and dividends to our investors.

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

Thanks, Bill, and thanks, everybody, for joining us this morning. I think what I'd like to do before I make some comments about the quarter and some specific parts of the business is really just kind of step back for a minute and talk about the industry and the environment and Brookdale and what we see over the next several quarters.

It's been a year since we did the American Retirement acquisition, and coming up on November, it'll be two years since the IPO, and I think we've got a good track record and I want to talk a little bit about how we see that and going into the future.

First of all, the fundamentals for this business, as you know from the past quarters that we've reported -- and I think into the future -- remain very strong. It's really due to a number of reasons, which haven't changed, but things that we see are simply going to go stronger in the future. One is the increasing consumer acceptance of the product for senior living and assisted living and the various services that we provide. The major mainstream media that the sector has gotten, I think, over the last couple of years, and the consumer awareness has really helped us.

Second is really the ability of our customers to afford our product -- and not only in terms of the housing we provide, but the services -- through pensions, home sales, those kinds of things. Everybody knows about the aging population, the longer life expectancy. I think we've proven ourselves out in the ability to achieve economies of scale and control expense growth. And again, the lack of new supply. The new supplies remain flat. All of those really bode well and these -- we expect all the favorable growth metrics that we've had to continue, and we stay very bullish on the prospects, not only for Brookdale, but the industry as a whole.

In terms of our ancillary service business, as Bill talked about, this business is coming together much faster and better than we expected a year ago, and that's really due to several reasons. One is our ability to hire therapists and make the clinic openings and really push this business out through Brookdale is almost formulaic. We've got a very strong team in place that's been able to get these start-up clinics and get the personnel hired and start delivering services at a faster rate than we expected.

Another reason is the ability to leverage the licensing that we have existing -- or American Retirement had existing in a number of these locations and states and our ability to obtain new ones faster than we expected. And then finally, the resident response and the utilization of the ancillary services has been excellent through the whole system. So we're providing services now to about 27,000 units, including the legacy ARC units. And as Bill talked about, we've been able to push out the services to over 14,000 legacy Brookdale units, which is well ahead of the plan.

Of the 4,000 Brookdale units that we opened in 2006, they are performing per our plan, providing about $50 of monthly NOI. And on the legacy ARC side, as Bill talked about, we've increased that NOI to $195 from $156, mainly to the delivery of licensed home health services. If you recall, we were able to purchase an existing home health agency in Florida, but we've also obtained several other new licensed home health -- or licenses for home health in other locations, so now we're providing licensed home health in 68 of our communities, covering about 7,200 units. And we're really excited about that growth prospect, since a year ago, we really didn't have it or that business was negligible. So we're continuing to ramp up the infrastructure for ancillary services, and again, look at that as a major part of our growth plan.

We now employ about 1,377 therapists and that's up from 1,139 at the end of Q1.

Let me also talk a littie bit about entrance fees. Consistent with what we've said in the past, the entrance fees are the least predictable part of our business and they really need to be looked at over the long term. We have ten entry fee properties out of the 548 properties that we operate. These are, for those of you who might not know, large campus, multilevel service properties that have everything from cottages up through skilled nursing. And people pay an entry fee and, in addition, pay a monthly fee as they move through that system.

But let me talk a little bit more about the customer for that type of product. Generally, they're the least need-driven of Brookdale customers. They're moving to the entry fee property at an earlier, healthier stage of their lives. As a group, they have a high homeownership rate. That being said, they've got the longest length of stay in any of our products -- about eight to ten years once they move in.

The target consumer for the entry fee property is generally conservative. As Bill talked about, they're usually living in a single-family home, either one they've lived in for a long time or an age-restricted community, and they want to sell that house before they move in. So what we've seen as sort of a side effect of the slowdown in the housing market is it's taking these people longer to sell their homes so their move in and the closing of that sale is delayed. And what we've seen obviously in the second quarter is some of these sales got delayed, but the trend, if you look at Q1 to Q2, trended up positively. And we saw a number of these sales get pushed off or delayed into the third quarter, and so we're seeing the right fundamentals in terms of the trending and we expect that entry fee to normalize over the next few quarters, but again, it's somewhat unpredictable.

But given our long term and our recent experience, we are very positive in terms of the entry fee business, and we're still very happy to be in that part of the sector.

So with that, I'd like to turn things over to Mark Ohlendorf to talk a little bit about the financial results.

Thanks, Mark. As we've discussed before, our acquisition, expansion, and ancillary service initiatives cause us to incur integration expenses and some startup losses. The $0.42 of CFFO per share that we reported for the quarter doesn't necessarily reflect our recurring cash flow run rate. The net impact on our second quarter higher results of these items is about $0.06 per share. Included in these integration and startup expenses are two primary items. One, acquisition and integration related expenses of $4.3 million, or $0.04 per share, which are primarily related to systems and process integration, as well as spending on activities to achieve SarbOx compliance at acquired locations.

And second, about $2.2 million, or $0.02 per share, of losses and startup expenses related to our various growth initiatives. These include losses related to recent expansion openings, employee training costs for communities that we've acquired within the last year, and startup losses related to the rollout of our ancillary service programs.

Again, not included in the CFFO calculations are approximately $3.9 million, or $0.04 per share, of amortization related to capital leases and mortgage debt. A table is included in our press release that provides the detail of this debt and lease amortization.

On the integration front, we're focused on the integration of ARC and the other acquisitions that we completed last year. During the third quarter of 2007, we will begin to reach a peak level of activity as we finalize the development of the platform and begin converting all elements of the Brookdale organization to a common infrastructure. You'll see an increase in our integration related costs in the third quarter as this rollout activity occurs. We continue to expect the total cost of our integration activities to fall within the range that we previously communicated.

We're all very excited about the capabilities that this common platform will bring to our ability to manage both our existing business and accelerate the integration of senior housing properties and companies that we might acquire in the future.

We also continue to make good progress on our procurement systems and programs. The technology backbone of our procurement program is the ordering, tracking and compliance system called OneSource. OneSource has now been rolled out to more than 85% of our locations. The balance of our communities are scheduled for OneSource installation and conversion by the end of this year. This system allows us to control the details of local purchasing behavior and consolidate our purchasing volume into more limited number of vendor arrangements and, in turn, negotiate better pricing with that more limited number of vendors.

Beyond OneSource, we also continue to be successful in effecting cost savings as we refine and consolidate our programs. For example, we've recently negotiated a new property insurance program that will save an estimated $3 million per year. We've identified new cost savings of around $4 million that we believe we will achieve over the balance of 2007.

Operator, I'll now turn it over to you for questions.

(OPERATOR INSTRUCTIONS) And we'll take our first question today from Mark Biffert at Goldman Sachs.

Hey, guys. Can you comment on the acquisition environment and cap rate trends that you're seeing in terms of the assisted living, independent living, and CCRCs?

Sure. You know, as we have told people in the past, to generate 30-ish percent cash flow growth, we don't really need to do much in the way of acquisitions. That -- and so we've done a bit, but have basically been focused internally over the first half of the year integrating all of our acquisitions, and again, we remain incredibly positive about that.

That being said, we are starting to see the acquisition pipeline grow, which I think is a function -- a combination of us starting to look at acquisitions and being somewhat of the dislocation in the credit and markets that obviously everyone can see. Capital is becoming harder to access, you know, for everyone other than really the most strong, well-positioned companies. And so we think, in the long run, obviously stability is better for everyone, but this dislocation really is going to be an opportunity for us to buy assets hopefully cheaper and more plentiful as we begin to focus on that. And again, we have a pretty interesting pipeline -- small deals and a few bigger things. Again, we won't comment on anything in particular, but that part of the business, as we begin a little bit more focus on that, looks promising.

Okay. And looking at your revenue growth going forward, it seemed that most of your revenue growth was coming from rent increases. What do you expect in terms of rent increases for the remainder of the year and what do you see from occupancy improvement?

Well, we've seen pure pricing increases on the revenue side, somewhere between 5% and 6%, probably closer to 6% over the last two to three quarters. At this point, as you can see in the press release, on a sequential basis quarter to quarter, the occupancy was relatively flat. We're clearly working to improve the occupancy, but in the environment we're in, it's hard to see dramatic changes in occupancy as we go forward.

But again, we have said we're kind of full, and most of our rate growth is going to come on -- or most of our revenue growth is going to come on the rate side. I don't think any of us really feel any differently about that today than we did at any earlier point.

Okay.

Mr. Biffert, we're losing your connection. We just lost Mr. Biffert. I'm going to take the next question from Jerry Doctrow at Stifel Nicolaus.

Good morning. I had a couple of things, just a clarification on the entrance fees. And I certainly don't want to beat this to death, but I think what you were saying is they were 4.7 basically this quarter, ramping up over the next two or three quarters to kind of the historic level, which I think was 11 million-ish on a quarter -- I think if we go back to 4Q of '06. Is that kind of the right way to understand what you're saying?

Jerry, it's Mark. I think what we're saying is the order book on the entry fee side of things is clearly building right now. When those customers are actually ready to close will depend a little bit on how the housing market behaves. It's clearly our intent that, as you described, this volume will normalize over the next several quarters, but it is a little bit dependent on how the housing market behaves in a couple of these markets.

And Jerry, it's Bill. One thing to add, given that the other parts of our business seem to be performing very well -- ancillary services, etcetera, are kind of outperforming -- to kind of achieve run-rate expectations that we hope, we are not necessarily assuming we get back to kind of full run-rate levels anytime soon, meaning next quarter. That would be great if it does, but we can still perform pretty well without that.

Okay. And the 4Q '06 is kind of -- is sort of the normalized -- you know, if everything was going fine, that would kind of be a normalized level.

Yes. I think if you look at both the third quarter and the fourth quarter of last year, you are going to come into that 10 -- $11 million run rate of net entrance fees.

Okay. That's fine. Just wanted to clarify.

The other thing -- I guess this is for Mark -- that was just a little odd to us in the quarter, the interest cost, in terms of just looking at the rate versus the what we show as the average debt outstanding, looked low, and I was trying to figure out if there was something in capitalized interest or is something else going on and what that normalized rate would be go forward.

I don't think there's anything out of the ordinary on a sequential basis with things like capitalization of interest. We may be seeing a little bit of drop in spread over time because we are refinancing a few of our debt facilities, but I don't think there's anything dramatic that's changing period to period there.

There'd be some, Jerry, some capitalization of interest taken with some of the expansion projects, etcetera, which are some that are starting to gear up, but from a run rate, I think this would be pretty typical.

Okay. Maybe we'll come back to you a little bit off line. And then G&A was the last thing I just wanted to ask about. You know, that I think actually dropped a little bit quicker than we had expected. I think you had said previous you're going to try and get down to kind of a 4% of revenue run rate, if I remember correctly. Just what might that kind of slope look like over the next couple of quarters?

Well, I think the 4% number is a long-term ambition, number one. Two, G&A I would tend to look at on a year-to-date basis as opposed to an individual quarter basis. Things do jump around just a little bit depending on specific activities in the quarter. I think if you look at the six-month numbers, we were at 5.2% or so. So I'd be more inclined to look at it on that basis.

Okay. And then just last thing and I'll jump off. There are obviously two big potential transactions there -- Sunrise, which has officially announced that it's putting itself up for sale, and then also Health Care Property Investors, which is one of your big landlords, has indicated I think they want to sell additional senior housing assets. I know, Bill, you said you didn't want to comment on specific deals, but are those two things that you might be looking at?

Still don't want to comment on specific deals, Jerry.

All right. I had to ask. All right, thanks, guys.

And we'll take our next question from Ryan Daniels at William Blair.

Yes, good morning, guys. Just a couple of quick follow-up questions, again, on the entrance fee communities. Just so I understand, can you give me a feel for when the refund is triggered for those individuals that leave the facilities? Is that upon their unit being resold or do they get that, let's say, when they die, they get that refund to their estate, kind of at that point or soon thereafter?

This is Bryan. That can vary a little bit just depending on what type of contract they have. Generally, there's refunds that are triggered upon resale, as you talked about, but also there's a fair amount of the contracts that are -- and this varies a little bit by state with some of the state regulations -- that are due after "X" number of days, so after 60 days, 120 days, etcetera.

So one of the phenomena that we see is that with some of the delay in closings that we're seeing is many of the refunds on those units have already been paid out. So as we see fresh entrance fee proceeds coming in from new closings, we're actually not -- we'll have much lower than typical offset in refunds and so we'll see more net resale cash flow because many of the refunds have already been flushed through the system. So we'll certainly see that building phenomena here, given the current inventory.

Okay. That answered actually the second part of my question. I guess the other thing is do you have a feel for kind of -- for every net new entrant, on average, how much you're going to recognize in CFFO? Because I get the feel, you know, if it's $100,000, $200,000 per person, it seems like ten people this quarter may have made a pretty substantial difference in the CFFO. Is that a fair way to look at this?

Yes, it is. The average entrance fee would be in the $175,000 range. 170,000, 175,000 is typical. Obviously that can vary with unit size and contract type, but that is an average rule of thumb.

Okay. And I guess then, Bill, this probably goes back to your comments. I guess if you think of the broader portfolio with 52,000 beds and the fact that 10 or 20 entrance fee patients can cause a swing in cash flows, but it really doesn't change the outlook overall, given the still high occupancy and growth outlook, is that kind of a fair way to characterize your vision for the future?

Yes. I mean this is the first quarter we've had to talk about entrance fees, but hopefully over the coming quarters, we're not going to spend half of the earnings call talking about entrance fees, given it's less than 10% of our business, because the rest of our business is incredibly healthy.

Yes. Okay, fair enough. And then a couple of quick follow-ups, just on OneSource, you mentioned you've converted sounds like the bulk of the facilities. Do you feel that you are yet generating the savings from that or is it really going to take maybe a year to the point where everyone's on it and then you kind of start getting the purchasing economies flowing through the system? So are you getting some of that but not all of it today?

I think that's a fair way to characterize it. I think up to this point, we've gotten the easier-to-implement part of the procurement savings. What OneSource allows us to do is dig deeper into the purchasing programs that aren't tens of millions of dollars a year, and discipline our purchasing and pricing in those areas, as well. I think your time horizon is probably about right. It's probably three to five quarters -- three or four quarters to fully implement that tool.

Okay, great. And then the last question and I'll hop off. You mentioned kind of that [210] level of CFFO is probably not as achievable, just given the year-to-date start on the entrance fee communities, which I completely understand. Do you have a feel for what it might be? Are you still kind of comfortable that we'll grow, if you will, to that kind of 50, mid 50, low 60% run rate by year-end? Is that what you're indicating?

Yes, that is correct. Let me just give you some jungle math that I do on a -- with my HP and a piece of paper.

Perfect.

And you can make your own assumptions. I think we reported NOI of roughly $166 million for the quarter. If you take the 14,000 units where we think we earn an incremental $50 per month per occupied unit, that should add roughly a couple million bucks that's not there today. What Mark Ohlendorf talked about was roughly $4 million of cost savings that aren't there today, so that's roughly $6 million, or again, $0.06. And then take our NOI growth on an annualized basis, and we talk about 8% to 10%. At 8%, that's roughly -- off of 166 annualized -- is roughly $6.7 million. At 10, it's roughly 8.4 million. So without any improvement at all in entrance fees, you're talking, when you add that up, anywhere from $0.12 to $0.14 growth over the $0.45 on a run-rate basis. We think entrance fee stuff will get better. That gets you into the low 60s on a run-rate basis. Not really more complicated than that.

Okay, perfect. Very helpful. Thanks, guys.

And we'll take a follow-up from Mark Biffert at Goldman Sachs.

Hey, guys. Sorry about that, I got disconnected. But just wanted to ask you about the fees coming out of your home health properties, where you're getting 195 a month. How much of that is Medicaid reimbursed? And what kind of risk would you see to that if the government were to put any kind of cap on the amount of Medicaid reimbursement that you get from that?

Most of -- as far as reimbursement for the -- both home health and therapy services within Innovative Senior Care, the vast majority of that is reimbursed through Medicare Part B, so it is primarily a reimbursement model -- there are some private-pay aspects to it, but primarily reimbursed through Medicaid Part B.

Medicare Part B.

Medicare Part B.

Medicare Part B. And there's -- as far as any risk associated with that, that program has continued to -- you know, from time to time, they've talked about caps or whatever the latest proposals (inaudible) continue to be to extend those out over much longer periods than they had been in the past. So the outlook still looks relatively stable. We're not seeing any significant shifts in the reimbursement model in the near term.

Okay. And do you think you can get the legacy Brookdale portfolio ultimately up to that 195, as well, over the next few years?

Well, I think, as we've communicated before, we're targeting roughly $150 based on what we had seen. The portfolios are not identical in terms of their density and product mix. I think it does show, though, that you can get to a higher level than $150 a month over time as you add additional services on the platform.

Okay. Great, thanks.

And we'll take our next question from Kevin Fischbeck at Lehman Brothers.

Okay, thank you. Good morning. You know, can you talk a little bit more about the occupancy rate in the quarter? I know that you think kind of in that 90% to 91% range is about where you should be, but I thought that Q1 was supposed to be seasonally weak, and I think we were looking, versus sequentially, some slight improvement there and it was kind of off a little bit. You know, was occupancy kind of flat to down across the board or was it, like, in one particular asset class? Was it generally the entrance fee facility? Can you give a little more color there?

I'm not sure that you can look at the portfolio and find any particular significant patterns. It's clearly the case if you look at markets where there is more economic compromise, some of the industrial areas in the northern Midwest, for example. Occupancy is more challenging there. Where the housing market has been extremely difficult, some places in Florida or Arizona, for example, been a little tougher there, as well, but I don't think any of these trends are of a magnitude that you would draw some long-range conclusion.

One thing that, you know, kept us from growing in occupancy on some level is we bought a fair bit of a number of assets that had lower occupancies where we have assumed lots of capital improvements on these acquisitions, which will improve occupancy over time because there was under spending. And so there was a number of projects going on. Frankly, we had so many acquisitions, it was hard to get to them all at the same time. And so as a result, the spending on the projects have been delayed. It's happening, but as a result, haven't been able to push occupancies on those assets as well.

Okay. So in that case, it's largely a delay in capex spending rather than the capex you're currently spending causing disruption? You haven't gotten to the projects you want to get to yet?

In the case of the acquired properties, yes.

Okay. And then I guess you mentioned a number -- and I guess maybe if you could give a little more color on that as far as the entrance fees. You know, any color you can provide about what, you know, that gives you a good sense that the actual demand is still there for that type of facility, rather than people deciding that the housing issues are going to cause them to maybe move to a facility that's not an entrance fee because they don't have to come up with the up-front money. Any color you can provide around the demand for those assets would be good.

Well, I think some metrics we look at, carried over from Q2 into Q3, were a little over $4 million worth of people who had put down a deposit but hadn't closed, and the vast majority of those are, again, waiting to sell their home. And in our experience, about 90% to 95% of those will end up closing. I mean, that's one of the largest carryovers we've had, so I think that part of it is coming back.

Anecdotally, in a number of these markets, we've see it trend upward, I think, because people are getting more realistic about the pricing of the home they're going to sell, but generally, where we've got these issues with the home resale market, they'll eventually move in. They're not going to move to a rental community. The issue is them selling their home. It's not picking one community over another or going to some other type of product.

Okay, so that was good. That was kind of the type of number I was looking for. That $4 million number that you gave, is that the actual deposits being placed down or what the actual entrance fee would be when these people finally move in?

That's the value of the sales ultimately on which people have made a down payment.

Okay. All right. And then I guess it sounds like you're saying that you still feel demand is pretty solid and that your supply is coming in line. I guess can you just talk about the bed expansion program, as -- you know, we didn't hear too much about that in the prepared comments. How is that going? Do you still feel as good about the economics of those deals? And that's my last question.

Sure. In the quarter, we completed two expansions of 115 units. So far, we've completed five expansions with 210 units. The expansions we opened in the first quarter of this year are actually 80% occupied at this point, and we think they're on target to -- well, meet or achieve our 12% to 15% unleveraged return targets. We have four additional projects with 86 units under construction right now, and as we've discussed before, we have a pipeline of potential projects, many of -- or some of which we may start by the end of this year. So fundamentally, our outlook on the expansions has not changed. It continues to be a great opportunity to grow the business.

Thanks.

And we'll take our next question from Matt Ripperger at Citi.

Hi. Thanks very much. Given the strong recurring operating cash flows in the quarter relative to recurring capex, as you look at sort of allocating some of that cash flow to sort of expansionary plans versus the dividend, can you just comment as to whether your philosophy towards the dividend has changed at all, given the various moving parts in the quarter?

No, not at all. Again, we remain -- when our board met to discuss the dividend, we had kind of full facts of how the business is doing on a current basis and where we think we're going, and nothing has changed from that perspective.

So the current intent still is, with the expansionary plans of roughly 500 million of new high return-on-capital projects over the next three years, your intent is still to finance most of that in the credit market?

Well, let's walk through the 500 million here, because it's been a couple of quarters since we talked about it. 115 million of that is a single entrance fee community in Florida. So the entrance fee community that's being constructed is effectively financed by entrance fees as the units are presold. Okay, so that's 115 million. There's about 380 million left then that's included in the expansion pipeline. About a third of that relates to assets that are leased. And the REIT is obviously anxious to fund the expansion of their communities and get some capital out.

So you've got 250 million-ish of expansions on communities that we own. In many cases, we are currently working on refinancing those assets, or will during the period of time prior to the expansion actually breaking ground. And the economics of these expansions are such that they more than support the construction costs with incremental debt.

And to be clear -- it's probably a good point to mention -- financing for senior housing assets is actually kind of unchanged currently from where it has been. Our biggest lender has been Fannie Mae and Freddie Mac, and they continue to maintain a strong desire to provide financing. And we've seen zero dislocation at all in financing. We talk to other people who are providing us financing quotes, so from that perspective, it's business as usual.

Yes, and just -- you can check with other sources, but the default rate in the senior living sector is close to zero and has been that way for a number of years. And with the fundamentals, it's one of the best performing asset classes from a debt perspective.

Great. Thanks for the color. Just a couple of more questions, if I could. In terms of the residence fee per unit per month, can you give a little more breakdown in terms of what it was for AL, IL, and CCRC in the quarter and how those three metrics are comping or trending year over year?

That information will actually be in the Q when it's filed, in our segment reporting, I believe, Matt.

Okay. We'll look for if there. And then lastly -- and again, not to harp on the entrance fees because it is a small, small part of the business and it is volatile -- but what is the current occupancy level across the board in your entrance fees? And then secondly, if you could break down the ten properties and give a little more color as to if there's a subset of those ten properties where you've seen this sort of short-term anomaly.

The occupancy of the entrance fee communities, I believe -- I'm sure I have them separately.

We're checking. We'll have to get back to you on that, Matt. We don't have that number specifically at hand.

Okay, that's fine. Let me ask one last question. The one entrance fee that you mentioned that was included in the expansionary plans in Florida, have you begun construction on that?

We have not actually begun construction.

We're in a pre marketing phase on that and actually going through the licensure with the state, and would expect to begin construction later this year.

But on a marketing perspective, that asset is going phenomenally well. That is an asset that is inside the gates of a place called Villages, so if you're golf fans and you watch TV and you see the commercial for free golf for life, it's really the only type of asset inside a place with, I don't know, maybe 50,000-plus seniors, so it is going to be a fantastic asset and demand for it is incredibly strong. We are really, really excited about that asset.

Deposits have come in very strong for that and we would expect to have that under way here pretty quickly.

Great. Thanks much.

And we'll take our next question from Frank Morgan at Jefferies and Company.

Good morning. Most of mine have been asked, but going back to the issue on the move-in activity, has there been any change in the number of prospects in the people that are visiting or is it just simply that is the same and that just the conversion rate on those people who are visiting has actually slowed?

Are you referring to the entrance fee business, Frank, or overall?

Well, I guess both. Yes. It's interest be fee and overall.

In terms of lead generation, property visits and all of that, it's pretty much the same. I mean, we've seen that pretty consistently, and I don't think you'd see our occupancy as high if leads started to dry up or the market was shrinking.

And even on the entrance fee, it's not so much conversion ratio, but simply the timing of conversions. You know, we're still seeing strong conversion ratio -- not seeing a lot of dropout. It's just simply more elongated time frames.

Okay. What about on the back door on the attrition side? Are you seeing any difference in length of stays on either IL or the AL?

You know, once we -- it's proven out over a period of time, once the ancillary services are in place in a property, it does lengthen the average length of stay somewhat, you know, because you're able to accommodate people's needs as they go up the acuity scale.

Okay, so no decline, no shortening of length of stays?

No, not seeing any negative trends there.

Okay. And then finally, when you talk to people about the delays in moving in and waiting to sell their house, is the delay here -- do they actually need the money to do it or is it just the thought of getting this kind of closed up and taken care of or is it actually a requirement to have the funds to actually do this?

Well, you know, when I talked about the customer for the entry fee properties, like I said, they're generally at an earlier healthier stage of their lives. They don't have to move -- I mean, unlike someone who moves into assisted living or dementia -- and they're conservative and they want the house sold. They don't want to be marketing an empty house, which every realtor will tell you is not a good thing and every insurance agent wants to stop coverage. They want to stay in it and get the house sold before they move.

And substantially all of these customers own their house completely unencumbered so it's not a money thing. Again, we have no real bad debt to even speak of in the business. So not affordability. They have the money. They're planners. Again, they're moving in because they're worried about their health care needs ten to 15 years forward, which again, I'm not sure a lot of us do. So that's really what's going on.

Okay. Thank you.

And we'll take a follow-up question from Jerry Doctrow at Stifel Nicolaus.

My question's been answered. Thanks.

Okay. It appears we have no further questions at this time. I'd like to turn the conference back over to Ms. Nagy for any additional or closing remarks.

Thank you all for joining us this morning. We look forward to speaking with you next quarter.

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