Brookdale Senior Living Inc (BKD) 2007 Q4 法說會逐字稿

Good morning, I'm Dennis, and I will be your conference operator today. At this time, I would like to welcome everyone into the Brookdale Senior Living fourth quarter 2007 earnings call. All lines have been placed on mute to prevent any background noise. (OPERATOR INSTRUCTIONS)

Thank you, Dennis, and good morning everyone. I would like to welcome you to our Fourth Quarter and full-year 2000 Earnings Call. Joining us are Bill Doniger, our Vice Chairman; Bill Sheriff, our Chief Executive Officer; and Mark Ohlendorf, our Co-President and Chief Financial Officer.

First, I would like to remind you as describe in the earnings release, this call is being recorded. A replay will be available through March 13 by calling 1800-642-1687, from within the U.S., or 706-645-921 from outside the U.S., and referencing the access code 340-58-685. This call is also available via webcast on our website www.brookdaleliving.com for three months following the call.

I'd also like to point out that all statements today, which are not historical facts may be deemed to be forward-looking statements within the meaning of the Federal Securities Laws. 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 the earnings release we issued last night, and in the reports we filed with the SEC from time to time. I direct you to Brookdale Senior Living's earnings release for the full Safe Harbor statement. Now, I'd like to turn the call over to Bill Doniger. Bill?

Thanks, Ross. Welcome everyone. I'm going to try to be brief. But first, let me introduce Bill Sheriff to the call. Bill has been responsible for the leadership of our Company since our American Retirement acquisition in 2006. And Bill along with the rest of the his management team actually was an integral part of our decision to buy American Retirement. Well, Mark Schulte has been a great partner of ours, and will remain involved on the board. The transition to a single CEO is really just a natural evolution of our integration process. And really in our opinion, Bill is the industry's most capable operator, certainly the hardest working, and a natural leader and we're thrilled to have him in charge of our Company going forward.

Looking back at 2007, reporting CFFO of $1.46 was a 37% increase over 2006. While we fell short, what we were hoping to get to going into the year, the fact of the matter is they still grew it at about 37% despite all the challenges in the economy, and as importantly, a massive integration that was going on inside the Company that really culminated in the fourth quarter. But, that heavy lifting is behind us. And we expect to have a very, very good 2008 despite all the woes of the economy.

Now, before I turn the call over to Bill, let me just spend a minute on dividends. Obviously, we paid out more in 2007 than we earned, and that wasn't the objective going into the year. However, we're very comfortable where we are today. We expect to earn a dividend on a run rate basis this year, and we have lots of liquidity that Mark Ohlendorf will talk about. And will also talk about shareholder value. We are pretty focused right now more than we have ever been on our share price. And the way we obviously can make that share price go up, two ways, really. The old fashions way, make the revenues go up faster than your expenses, and Bill will talk about how we are doing that. And the other way, is really balance sheet management and looking at ways to capture the discount between our share price and our net asset value.

If you look at the market cap for our company, I think we're trading at around 9% cap rate, and for those in the senior housing business, and who have an understanding of our assets better than credibly, incredibly wide. A balanced view of our assets, would suggest a cap rate probably in the 6 1/2% area. Maybe, a measure to look is the NAV analysis used by many folks when looking at healthcare rates who have the really a broader mix of assets, including a fair bit of skilled nursing assets which are often traded at a higher rate. Cap rate than pure independent assisted living assets. But using say, a 6.5 cap rate, on our forward numbers, would imply a NAV per share of roughly $45 of share, which obviously is a big premium for where we are trading today. You know, why I can't be specific on what we're doing, I can't tell you that both management and the board of directors are unanimous in that this is a priority, and we curious when we're looking at lots of different options in trying to capture that discount. And I think we'll be successful. And everything is on the table, but again, that's really all we can say it right now.

And with that, i'd like to turn the call over to Bill.

Let me start off with making a few general comments about the senior living housing industry. The demand for our product remains robust and is growing, but supply remains constrained for the foreseeable future. The best news for our Company is that we are the largest U.S. provider and our scale allows us to provide the highest quality and most comprehensive service in the bid of provider of choice in the markets where we offering.

Obviously, our business isn't without challenges. During 2007, we saw a shift from a relatively robust market prior to 2007 to a period of correction and uncertainty. Clearly, the housing crisis in our country and overall economic slow down has impacted the timing of dividends for our residents, particularly in our entry fee business. As a result, we adjusted how we approached the market, which has contributed to our growth in 2007 and leads us better positioned to achieve attractive growth in rates of 2008 and beyond.

First, we increased and refined our marketing efforts. As we have talked about before, we initiated a major market management pilot program midyear to integrated the sales and marking efforts of all our products in a particular market. The pilot successfully demonstrated the strong advantage we can realize with our scope and size in major markets. For example, in Denver, since the initiation began in the summer of 2007, we had increased occupancy by year-end with that market by 6 percentage points. We are now up and running in 14 markets representing roughly 16,000 units. Well, too early to tell, we expect positive impacts in these markets.

Second, we refocused on training, branding, sourcing and other marketing tools that I would call basic blocking and tackling. And the results of these efforts is that our total portfolio occupancy has held at over 95%, excuse me, 90.5%. But, the important point is that we were able to hold occupancy while we maintained our prices discipline and that is reflected in our results. In fact, on January 1, we raised rates across our entire AL portfolio that will yield an average revenue per unit increase of 4.5%, and we will see a 5% average revenue per unit increase from the combined effects of rates for the new residents moving in to our, as they move in in the balance of our portfolio.

Third and most important, perhaps, is our interest to integrate all our companies together, as well as built a platform for the future.

The fourth quarter was the peak of our integration activities. We flipped the switch on a lot of new enterprise systems. I.T. systems like general ledger, accounts payable, payroll, procurement, as well as the accompanying reporting processes. As Mark will describe in detail, that can and did come with some financial reporting consequences, and was quite honestly a large distraction to the organization during Q4. But, we had to get through it to bringing the legacy companies together as one Company. On January 1, we roll-out a new field organization based on geographic divisions not product lines. Now, all products and the concept of a continuum of care in the marketplace are all under one management structure. Sounds like the right thing to do, but without the right systems and processes in place, it wouldn't have worked earlier. We're not through with all of systems development integration activities, but we have completed about 75 to 60 percent of our the integration projects with the most distracting part behind us.

We also made significant progress with the roll-out of our ancillary services. We've promised advancing therapy services to 8,000 additional units in '07 and in fact added over 12,000. We will continue to improve the economics of the services at new clinics mature and increase productivity. We expect that once mature, we will drive $150 operating profit per month per occupied unit in newly served units through full therapy and home health. The maturation process for ancillary services including both offerings is 6 to 8 quarters. At year-end, we had 28,000 units served of therapy services and 7,500 served by home health. In these service, we add a very strong market advantage as consumers look for the best in current and future place to receive the healthcare services they need.

Let me turn of what we expect in 2008. We have to assume that 2008 will will a challenging environment, given the current economic conditions with the first and second quarters being the more challenging. Yet, despite that, we still believe we can grow our CFFO to 15% to 20% over 2007 assuming existing market conditions and without any acquisitions.

Why do we believe we can grow at this level for '07 despite the challenging environment? We are currently demonstrating that we can continue to increase revenue per unit through revenue, through rate increases and ancillary services growth. Our recent acquisitions are an area of opportunity. And necessary renovations are finally being completed, which will drive demand, certain state approvals are finally in hand, and we have good rational business plans in place. We had the full-year effect of the fill of the 200 expansion units that opened in 2007 as well as the initial fill of the [38] to 400, we will open in 2008. Our new acquisition strategy for home health is getting traction. We acquired four agencies in Florida in '07 and required one agency in Texas in January, that will several 928 units, have agreements in place to purchase several more agencies covering more than 2,000 units with more in the pipeline. And we have made a significant investment in systems and people in the procurement area allowing us to continue to harvest cost savings throughout the year.

Let me conclude by stating that there will be an influxion point of change in consumer sentiment in our business. It will come when there is a sense that the economy has bottomed, and off course, we have no way of predicting in which quarter that will occur. We will see the positive results of that reaction quite quickly and before the economy is, if you will, officially in recovery. There will be demand, and as a result of credit constraints on new development, a limit of new supply to meet that demand. When that happens, we would expect to see even better growth through the rebuilding of occupancy and improved interest peak cash flows as they return to normal levels. I would like to now turn the call over to Mark.

Revenue for 2007 total $1.8 billion, an increase of 40% over 2006. Same story metric for the year continued to be strong. For our 425 annual same store communities, year over year NOI growth was 9%, excluding the impact of $7 million of transitional charges to conform accounting policies, which were included in our fourth quarter results. The primary drivers within this 9% annual NOI growth rate includes 6.9% revenue growth, 6.7% of which is revenue per unit related, and operating expense growth of 5.7%. Excluding the impact of our ancillary services roll-out, revenue per unit grew 5.1%, while expenses grew 3.3% and NOI by 8.2%.

For the fourth quarter, we reported CFFO of $0.28 a share, that number is net of $15.1 million or $0.15 of share related to integration that can be categorized in two parts.

First, there are $8.1 million of acquisition and integration costs that represent the costs in the quarter to develop and implement the integrated systems and processes. We've incurred the costs in prior quarters. An example of these costs are professional fees for third party consultants who are working on I.T. conversion project.

Second, during the fourth quarter, when we combined our separate accounting systems and organizations, we conformed our accounting methodologies and practices across Brookdale. That resulted in additional $7 million of charges related to our desire to conform policies across all of our platforms, including $5.9 million of estimated uncollectible accounts, and $1.1 million of accounting conformity adjustments, pertaining to inventory and certain accrual policies. Without the impact of these two items totaling $15.1 million or $0.15 of share, reported CFFO in the quarter would have been $0.43, which does not include debt in capital lease principal amortization of $4.1 million.

Again, excluding the $7 million of integration related accounting items, same story results for the quarter over quarter showing an increase in revenue of 7.3%, a result of an average revenue per unit growth of 7 .4%. Expenses grew at 6.4% resulting in same store NOI growth of 8.9%. Adjusting out the ancillary services impact from the legacy Brookdale units, revenue grew at 5.2%, expenses grew at 3.6%, and NOI grew at 8.1%. Looking at the balance sheet, as of December 31, we had $100 million of cash and $93 million of undrawn capacity under our corporate line. Other than normal scheduled amortization, we did not have any security debt maturities in 2008. Our corporate line of credit initially matures in November 2008, however, we have the right to extend it until may 2009. Our plan is to continue with asset refinancings in 2009, to repay outstanding amounts under the line either to zero or down to a modest level that will simplify the process of renewing the line.

And finally, here is our sense of the key NOI performance drivers for 2008. We continue to expect the annual rate growth in the 4 1/2 and 5% range, plus the growth from ancillary services roll-out. Some of our rate growth will be front loaded in the year, since we increased rates across our assisted living portfolio on January 1. All in all, we expect that we should maintain our revenue growth rate for the year at historic levels. On the cost side, we expect to see unit cost growth of around 3 1/2%, not including the roll-out of ancillary services. With labor and benefits accounting for more than 60% of our costs, the current economic slow down should restrain up for pressure in this area. Additionally, we expect to continue to produce cost savings from our scale given the new procurement systems that were completed in 2007.

Let me add that we plan to slightly modify the way we define CFFO going forward. There's been some confusion about how debt in capital lease principal amortization should be treated in the calculation. Beginning in 2008, our reported CFFO will subtract principal amortization related to capital leases where we do not have a bargain purchase option. For the leases where we have a bargain purchase option, we will treat the amortization similar to how we treat principal amortization related to debt and excluded from the CFFO calculation. We've included the table in the press release to presents our CFFO results since 2006, under this modified definition of CFFO.

Our CFFO for 2007, under the new definition excluding acquisition and integration costs and accounting conformity impacts would have been $1.67 per share. Based on current market conditions, that is soft occupancy and slower entrance fees, we are forecasting CFFO of $1.90 to $2 per share, excluding integration and acquisition costs and assuming no acquisitions. As Bill mentioned, once the customers get a sense that the economy is bottomed, we would expect to see growth rates in excess of 20% as we rebuilt occupancy and entrance fees and can further push unit turn over rental rates.

A couple of additional thoughts on items that will impacts your models. We do have a sequential pattern, a seasonal pattern to our business and some of the factors that affect our sequential quarter performance in 2008 will be, first as we've seen over the last several quarters, net entrance fees tend to peak in the fourth quarter, drop off in the first quarter and gradually build throughout the calendar year. Absent of significant change in market fundamentals, we expect to see a similar pattern in 2008.

Second, our sequential performance in the third quarter compared to the second quarter will be impacted by higher utility and holiday related costs in the third quarter.

Third, during 2007, we made tremendous progress on our integration and development of a platform for the future. We had expenses of $19.1 million during 2007 on acquisition and integration related items and also spent $14 million on related capital expenditures. We expect for expense $10 million to $12 million in 2008, and occur $8 million to $9 million of capital expenditures primarily on systems. We anticipate that this will complete our integration process.

Four, our earnings release shows our capital expenditures by category. It's important to continue to refresh, renovate and expand our portfolio and during 2008, we expect to invest $80 million to $85 million of cash in these three categories somewhat lower than we spent in 2007.

And finally, our current forecast on the income tax front shows that other than $2 million to $3 million of annual state income taxes, we did not expect to pay other cash income taxes through 2009. State income taxes will increase by $1 million to $2 million per year after 2009 through 2013. We would begin to be subject to cash federal income taxes in 2013, and become fully taxable in 2014. I'll now turn the call back to Bill.

Let me conclude with a brief recap. We continue to see incredibly positive results coming out of our business. Revenue at 5% growth, expenses 3.5, and operating margins around 36%, that provides us with NOI growth in the 8% range and CFFO growth in the 20% range. This presumes relatively stable occupancy and to date that seems like where we are. There is no doubt that these are challenging times, but I'm extremely proud of the effort of our associates in delivering the results and most importantly , I remain greatly optimistic for the future of Brookdale. I'll now turn it over to the operator for

(OPERATOR INSTRUCTIONS) We'll pause for just a moment to compel the Q-And-A roster. And our first question will come from the line of Ryan Daniels with William Blair.

Yes, good morning, guys. A couple of quick housekeeping questions. I notice in the G&A line, it was down quite a bit sequentially. I know it was due to some [nine] cash charges, but I was hoping you could give a little bit more color on there stock comp and what drove that down?

Sure, Ryan, this is Mark. A number of our stock grant programs included performance level triggers for vesting. And we made a determination in the quarter that we would not meet those targets, and therefore, reverse the stock comp expense.

Okay. And then somewhat similar, thank you for that. Somewhat similar question on D&A, i noticed that dropped a lot sequentially as well. Was there anything unique there? Or is that a better run rate to think about going forward?

That is likely a better run rate to use going forward. In our acquisition transactions, some of the groups of assets are amortized over a relatively a short period of time. So, i think you'll have a better run rate to work also.

Okay, great. And then, if we look at the CFFO calculation you guys provided, isn't updated under the new methodology, it looks like you're giving yourself lots of credit on the integration expenses. So, just as an example looking at last quarter, you guys have an add-back of $.04; whereas in the Q3 result, you had a $.06 add-back. Is that just excluding the ancillary roll-up in the sort of expenses there and focusing exclusively on kind of integration expenses?

Yes, that's right.

Okay. But definitely, think of your guidance off that $1.67 number, not concluding those expenses?

Exactly.

Okay. Ant then, a couple of bigger questions. I'll humped back off into the cue. Bill, I think you mentioned kind of in the past that crescendo of integration activity is hitting Q4, and I was wondering if you could talk a little more. I know the systems went live and that was one big thing. But, it maybe, what is remaining in your view as key milestones over the next two to three quarters on the integration front? And what you guys are hoping to accomplish there?

Well, actually Mark will probably give a better detail on a pieces of going forward, but we were flipping switches seemed like every week during the fourth quarter, and that was, crescendo, and what we have going forward will not be nearly as disruptive, particularly to field operating organization is what we experienced in the fourth quarter.

Yes, exactly. The primary difference, Ryan, would be the big systems we've brought up to date are the core infrastructure, financial systems in particular. As we move forward, we'll be combining and really more refining things like sales management systems, for example, risk management systems, clinical management systems; more operationally base systems.

Okay, great. And then, last question. I know there's been a lot of data recently about being a pretty bad flu season. I'm curious, if you guys - - i know you have seasonal weakness in Q1, it would slightly lower move entrance and move outs. I wonder if your occupancy has dropped in the last few months? If you can give any color? One, because of seasonality; two, the worst housing market; and three, because of the flu season.

Our occupancies is at held, very well. We did have, we have experienced the same wave of other people have of going across. It's not a large number of communities, but we have some that they have to experience temporary admission delays and holds in order to get cleared. But, again, the results speak to the strength of what we have despite that element.

Sure. And we should consider that to be holding thus far in Q1 as well?

WEll, as we've said, we expect the first quarter to be kind of the most challenging quarter, but we are holding.

Okay, fair enough. Thanks, guys.

Your next question will come from the line of Kevin Fischbeck with Lehman Brothers.

Okay. Thank you and good morning. I wanted to go back to Bill, I guess Bill Doniger's, that comments earlier about monetizing assets to the extent you can expand on it a little bit. When you talk about creating shareholder value, it sounds like what you are saying is that most of your assets have some sort of asset based financing, but after you saw those assets any net proceeds you would get would be geared towards repurchasing stock rather than some sort of debt pay-down or acquisition?

Well, again, without being specific, one of the options would be buying back stock and again, we think our stock is very undervalued relative to kind of market pricing and where we think the growth is going to be, So, again, it's hard to be specific right now, but everything is on the table.

This change - - is it just a simple matter of how the market is valuing the company versus the underlying assets? I mean all else equal? Would you still rather be owning assets than leasing?

It has nothing to do with whether we want to own or lease assets. This has everything to do with the stock price relative to what we think the growth prospect are, for our business, despite of what is happening in the world today.

Okay. That makes sense. And then, moving over to the guidance, you're now 15% to 20% down slightly from the 20% number last quarter. Is there a change in the same store NOI assumptions? I guess what was the rationale for the range? Is it just the uncertain economy that held on it?

No, there is no change in our sense of the fundamentals. And I think you see in the quarter over quarter or year over year, same store growth rate, they continued to be extremely strong. As Bill indicated, we expect the first couple of quarters of the year to be somewhat challenging. So, as you indicated, it's more of a sense of the volatility in the market. Our desire to be cautious about guidance. We continue to think that over the long term, the fundamental support, 20% growth.

Okay. And then, last question for me. Operating expenses were again, will that be higher than I would have thought? The second straight quarter where he had about $5 million to $6 million our sequential increase in revenue, but $9 million to 10 million sequential increase in cost. What's been driving that? And, i guess, where are there start-up losses in the quarter of this quarter?

If you're look at the sequential quarters?

Yeah.

Well, let me add a couple of thoughts here. One, again, if you look at the same store performance, quarter over quarter without the answer ancillary service roll-out, we have 3.6% expense growth and year over year, it's 3.3%.

Now, look going at the sequential quarters, the cost is up about 14 million. Again, 7 million of that relates to the accounting impacts that we talked about. Nearly, 3 million of the remaining 7 is increases in ancillary service costs and other items that relate directly to changes in our revenue. So, you're left with $4 1/2 million or so. And a normal 3.5% inflation rate; that's about $2.5 million. We did see some true increases in cost in the quarter related to additional spending on marketing and advertising, as we deal with the market conditions. There have been some commodity price increases in things like food. But, in general, we are still comfortable with the 3.5% unit cost growth as we go forward.

Okay. And so, I guess, they are delta might be the ancillary services continuing to ramp-up, that should give you more leverage as the year goes on?

Yes. I think that will be - - the $7 million of accounting items and the ramp-up in and ancillaries will be the two most significant items.

Okay, great. Thanks.

Your next question will come from the line of Jerry Doctrow with Stifel Nicolaus.

Hi, thanks. Just one quick fact with another couple of things. Did you use the ending share accounts with the quarter? We didn't see that in there, Mark.

I think it's 101- - give me just a second, Jerry.

Okay. Let me jump on a couple of other things. I guess, back to Bill, why wouldn't you just cut the dividend? My argument would be from maybe $0.10 or so, free up so much cash, get everybody less concerned about the dividends issue and you could use that to that to buy back stock or make acquisitions in the good market? I'm just trying ti understand sort of the rush now - -for not - - it's kind of priced, anyway at this point.

We generate a lot of cash. And like i said, everything is on the table. What we focused on is not the dividends of the dividends say, but making the stock go up. What we focus on is not the dividends, but making the stock go up. We are comfortable with where we are at the dividend. We want to look at all the options and see what we can do. But, again, there's more than one way of doing this, and we want to be thoughtful, but aggressive about doing the right thing.

And is there sort of a time frame to in order for sort of thinking through these issues and making some decisions about a share by back, or [inaudible] dividend cutters, selling assets? Whatever is you're going to do?

Well, after this earnings call, it's the number one priority for the Company.

Okay. And are you sort of still in the acquisition business then? Or given where things stand, given maybe that the stock may be more attractive than buying properties at this point? Or should we be thinking that there's fewer acquisition or at least nothing and dramatically acquisition side you might be doing?

Well, let me answer that with the fact if that, there are - - in this environment, when you have liquidity and strength, which we think that we do, there's lots of interesting things to do. What we want to do is prioritize our capital and invest it, and the same that will generate the highest returns. Right now, probably at the top of the list, we believe is our stocks. But, we're not going to foreclose any really growth opportunity. I don't think we are looking at a lot of acquisitions right now, but over time, we will buy stuff again, we're still doing expansions. But, again, we care about where we get the biggest bank for our buck as opposed to just buying things, expanding things or whatever.

Okay. And then last thing, and I'm jump off, get me - - since everybody is sort of thinking that doomsday scenario is here in terms of the housing market. Any chance, could you give us some color in the places like Florida, Arizona, or someplace, Southern California, I don't know that you have that much in California, where you seen much more stress on the housing market? As to how occupancy rates are holding up in those markets? Again, I think a little color there would sort of help people maybe get comfortable.

But, first, we have a very diverse - - both geographically, as well as product line mix across our total portfolio, and the variation that we would see in the southern divisions and new alignment is the product quarter - - 0.25% off the median point there. And, yes, the Florida and the Arizona/California are tends to be on the soft side of that, but not a significant amount, and they are holding in the occupancy rates there are holding comparatively with the other areas at this point.

Jerry, this is Mark. Your share account number is a $101.9 million for the fourth quarter CFFO.

Okay. Great. Thanks.

Your next question will come from the line of Mark Biffert with Goldman Sachs.

Hi, guys. My first question is for Bill Doniger. Related to the 6.5 cap rate you mentioned to get to that $45 implied value, share value. I guess, I'm curious what you are seeing in terms of cap rates in the markets where you are at by property type? And in terms of what you've seen, in terms of cap rates moving up back up, given the lack of transaction volume and the lack of available financing for people that want to buy these assets.

First, let me say that financing is not unavailable for these types of asset classes. In fact, I would argue that financing is up as available as it has been for us. We've done a fair bit of financing in 2007, and actually into this year, and we're getting financing done for proceeds and rates of where we thought they would be. And so, senior living financing actually remains pretty liquid if you are not looking for 90% leverage, we don't finance our assets that way. We've never used CMBS to finance our assets, which is obviously a highly dislocated market right now. So, the GSE's and insurance companies love our type of assets. The historical performance on default rates, i think are probably the lowest of any type of real estate-related assets. So, there is plenty of liquidity, as long as you have some capital to put below the deck.

You know, you probably have a better view of all the different cap rates in the real estate sector. But, I think healthcare trade probably just above a 7% cap rate on an one year forward basis, but they exclude in that cap rate analysis G&A. In our number, we are including a 5% management fee, if you will, and again, a lot of the healthcare reach have great proposed of assets including ours. But, I also have a mix that would tend to have a higher - - get to a higher level given all the nursing home stuff. So that's really - - but picking up, pick your cap rates 7, you're still getting a pretty high NAV relative to where we are today; you're still in the 40s. So, again, there isn't really a precise answer, but there's, I think, pretty good cap of personal at a 9% cap rate. You can't buy a portfolio of senior housing assets anywhere close to the quality of what we have at that level, and you never could so. From that perspective, you are just talking about the degree of discount.

Okay. And how do you break out between own versus managed assets? And how do you look at that in your evaluation?

Again, It's again a hypothetical with two lease assets. We stick all the lease payments, capitalize it back on to the balance sheet, and do a calculation. With argue the healthcare when people use than any of the houses. They don't own the assets unencumbered. They own it subject to a lease. So, it's a hypothetical, but similar analysis.

Okay. And then you mentioned about the financing. I'm curious what rates are you seeing? I already spread you're seeing in terms of financing from the insurance companies and some of these other guys.

That's moved up. Absolute rates are down, and rates and spreads are probably anywhere from 175 to 200, 225. Depends on the asset mix.

Okay. And, i guess, jumping over to the outlook, looking at ancillary revenues. I didn't see a unit - - average unit revenue number. I saw for the legacy portfolio at 197. I was wondering what that was for the Brookdale legacy portfolio?

We would have seen somewhere around $75 in the quarter per unit.

Okay. So, that's up from 50 last quarter. Is that correct?

It's in that range.

Okay. And then, looking at the - - my last question relate to the one-time charges that you are looking at, I think was $10 million to $12 million of additional integration charges. Is that going to be front-end loaded?

Yes, it will be. The P&L impact of that will decline as we go through the year.

Okay.

But, we're likely last through '08?

Okay. So what would you say, what is a good run rate in terms of looking at for CFFO? Is that that $0.43 that you had in the quarter and then just build the growth on top of that?

Again, we are slightly tweaking the definition of CFFO into next year. So, I think the only change you might make is to subtract a penny for the lease expense.

That's a penny per quarter?

That's right. And then you would be working off of a consistent definition as we will use in '08.

Okay. Thanks, guys.

Your next question will come from the line of Stefan Mykytiuk with Pike Place .

Good morning. A couple of questions. First, what was the ancillary in the Brookdale, the legacy Brookdale facility? Was that a drag in Q4? Or an operating income?

It produced an average NOI of $75 a month.

Okay. I'm sorry. I missed that on the last. And for the year, what was that then?

It would have ramped up during the year. Give me just a second. Go ahead, and we'll see if we can find that for you.

Okay. And then, just in terms of the outlook for '08, in terms of occupancy, it sounds like what you are saying is maybe some dip in a small decline in the beginning of the year, and then go back up in the back half and - -Is that - - am I reading that right?

General sense, but over the year, it's a flat respective, but we expect a little bit more pressure in the first part.

Okay. So, hold occupancy flat for the year, drives the rate and then drives the ancillary and control the costs and that's how we get the NOI growth.

That's the basics.

Okay, terrific. And I'll hop off, but if Mark can just come back at some point with the - -

On the NOI front, the $75 a unit number is our class of 2006. So, those are the Brookdale units, it's about 4,000 units where we rolled out. Where we have got some meaningful results there. We ended the year at $75, there was so the modest ramp-up on that as we advanced through 2007.

Okay. But, net for the whole year, you're saying, you actually, if there was no drag from rolling out ancillary in Brookdale?

There was. Well, there was. There, i was referencing just what we rolled out to in 2006. We obviously rolled out to, as Bill said, 12,000 units in '07. In the fourth quarter, we reference in the release, we had about $1.2 million worth of start-up losses related to the ancillaries and expansions. So, as we continue to roll out, there will be a group of locations that do incur losses.

Okay. I think I got it. Thanks.

Your next question will come from the line of Jeff Englander with America's Growth Capital.

Good morning, guys. Could you give us some color on - - perhaps some indicators that you might be looking at? Better indication at removing occupancy or improvement in entrance frees? As you mentioned, the idea that you're going to have improvement before or officially in a recovery. I was wondering what type of things you might be looking at it in advance of that?

Well, again, I guess ,the most meaningful indicator we have is what's happened with our occupancy as we've gone through this last year. And it's held fairly steady within a 10 or 20 basis points range.

And that needs to be taken in balance with the fact that we've maintained our revenue growth rate. And taking those two together, we feel very strong about how we perform in that regard.

I guess, let me phrase it a different way. What I'm trying to get is obviously, you're going to see some kind of turn as you start to see a turn in the housing market, but in particular, what you are looking at, are there other, other than maybe increased sales in increasing homes? Or is there a specific to your properties or your areas that you are looking at that give you an better feel for that before it's generally obvious? Other parts of the economy.

We cannot totally predict exactly when that will turn. There is variations in markets, but the one thing we can say is a turns. We will see some significant improvement. Basic supply and demand, we go into the correction with incredible fundamentals, and that will again demonstrate itself as we go out.

Okay. And one quick question. In terms of the change in the CFFO calculation, can you give us some color or some sense as to how long this has been on the table? And what led you to do this at this point in time?

Well, the existing definition we've used through '07 is really what we used at the time of our IPO, a couple of years ago. Obviously, our capital structure has changed over time. We've also had a subtle difference between the way we look at it internally versus how different folks look at it externally. We think it's important that those sink up, and it's really no more complicated than that.

Okay. Thanks very much.

At this time, I will turn the call back over to Mr. Roadman

Thank you, Dennis. With that, we'll conclude our call for today. If you have any follow-up questions, please feel free to call me, and we'll have Mark and Bill around as well. With that, thank you, and look forward to talking to you next quarter. Thank you.

Ladies and gentlemen, this does conclude the Brookdale Senior Living fourth quarter 2007 earnings conference call. You may now disconnect.