Brookdale Senior Living Inc (BKD) 2008 Q2 法說會逐字稿

Good morning, my name is Jacob and I will be your conference operator today. At this time, I would like to welcome everyone to the Brookdale Senior Living second quarter 2008 earnings conference call. All lines have been placed on mute to prevent background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions) Thank you, Mr. Roadman, you may begin your conference.

Thank you, Jacob. Good morning, everybody. We would like to welcome you to the second quarter 2008 earnings call for Brookdale Senior Living. Joining us today are Bill Doniger, our Vice Chairman, Bill Sheriff, our CEO, and Mark Ohlendorf, our Co-President and Chief Financial Officer. Before I turn the call over to Bill, I would like to mention a few things. First this call is being recorded. The replay will be available through August by calling 800-642-1687 from within the U.S. or 706-645-9291 from outside the U.S. and referencing access code 58192511. This call is also available through our website, www.brookdaleliving.com for three months following the call.

I would also like to point out that all the 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 other 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 file with the SEC from time to time. I direct to you Brookdale Senior Living's earnings release for the full Safe Harbor statement. And now I would like to turn the call over to Bill Doniger. Bill?

Thanks, Ross. Welcome everyone. CFFO for the quarter was $0.45 per share after adjustments. More importantly, the key drivers of revenue growth for our business have continually improved on a monthly basis throughout the second quarter and into July and August looks good as well. Occupancy is up approaching 1% since May, and our interest fee activity picked up measurably as well. I think we have had the best quarter we have had on the entrance fee side in quite a while. Additionally, we completed all the financings we intended to accomplish for the year and have no material debt maturities for the foreseeable future. As we indicated in our last earnings call, our Board of Directors authorized $150 million stock repurchase plan. During the second quarter, we repurchased approximately 780,000 shares before the trading window closed and, more importantly, we anticipate recommencing our buyback plan when our trading window opens this quarter to take advantage of the most attractive investment opportunity we see in the market right now, our own shares. Today on the call, Bill and Mark are going to address four principal topics. First revenues, that is occupancy and rates. Second, ancillary services. Third, operating costs. And fourth, balance sheet and liquidity. As you will hear, the facts are positive. Our business remains healthy and we remain optimistic with the direction we are heading. With that I would like to turn the call over to our CEO Bill Sheriff.

Thanks, Bill. Let's get right into it. First, let's talk about occupancy. Q2 average occupancy was 88.9, which was slightly lower than Q1. However, recent trends are more encouraging. Occupancy started stabilizing during the quarter as move-in rates began increasing leading to June which ended as our first positive occupancy month since July 2007. Occupancy was solidly positive in July and we believe that the combination of June and July's change was an increase approaching 1%. Our preliminary read for August looks to continue the trend of occupancy improvement and our team feels a level of firmness that they haven't felt in many months.

Looking at our segments, the assisted living segment occupancy where we have added sales resources was stable from April through June and July although the CCRCs and retirement centers trended lower during the same period, the decline was much smaller in Q2 versus Q1 and the retirement centers ended with occupancy gains in July -- in June and July. The entrance fee business also performed well given the housing market challenges. Although still below what we think is a normal level, we produced 78 sales in the quarter, the highest number since fourth quarter of 2006 and generated $7.8 million of net entrance fees in the quarter, over $3 million better than the same period last year and over $5 million better than the first quarter. What have we been doing to create this improvement? First, we continue to take advantage of our critical mass. Where we have multiple properties in the same market, we call these our M3 markets. We are able to cross-sell customers to best fit their needs at either price or acuity. Our marketing folks are placing more people in the system as we can provide for just about any customer. We have a virtual CCRC in these markets, giving the customer attractive options within a Brookdale network which lengthens stays within the network.

In the 12 markets where M3 has been initiated by the beginning of 2008, we gained more than 1,000 residents from in truck company transfers or sharing of referrals through the end of June. About 60% of our portfolio is clustered in markets where we can introduce some form of cross-selling or joint marketing. 'This is something that is really unique to Brookdale and is almost impossible to be replicated by any of our peers. Second we have continued to make additions to the sales force and occupancy has stabilized or increased in the regions where we have done this. For example, in the four regions where these new sales resources are focused, average occupancy for Q2 is up over 3.5% from the same period last year.

Now let's talk about rates. Rates are holding well. We continue to see 5% plus increases on same-store basis across the portfolio with only some geographic weakness. Our national brand is paying dividends. Customers come to our communities and believe that they are getting more value from our service. Finally let's talk about ancillary services. This element of our business is totally needs driven and continues to produce strong, increased results. Again, there is something that is unique to Brookdale in the senior living industry. Our ability to provide this service in-house is another component that will differentiate us when a customer is making a decision where to move. The rollout is going very well, with ancillary revenues increasing 19% over the prior year quarter and net operating income 33% between the periods. At the end of the quarter, we were providing therapy services to over 32,000 units in our portfolio, up from 27,000 in Q2 last year and almost 11,000 units with home health versus 6,250 last year. At the same time, the legacy platform is improving on already strong results with monthly NOI or occupied unit improving to $215 in Q2, the highest ever. I would like to turn it over to Mark at this point.

Reported cash from facility operations or CFFO for the quarter was $0.36 a share, compared to Q2 '07 $0.41 a share before nonrecurring adjustments. In the second quarter, we recorded $8 million of litigation-related reserves and incurred $2.4 million in acquisition and integration related costs. We incurred $1 million of start-up expenses related to the ahead of planned roll out of ancillary services. In the quarter we also recorded a $2.5 million benefit resulting from the acquisition of a facility that we previously managed. Excluding these items, Brookdale's second quarter CFFO grew to $0.45 a share. Same-store results for the year-over-year showed an increase in revenue of 5.9%, a result of an increase in average revenue per unit of 7.4% and a decline in occupancy of 1.3%. Expenses grew at 6.8% resulting in same-store NOI growth of 4.3%. Adjusting out the ancillary services impact from the legacy Brookdale units, revenue grew 4.2% with rate up 5.7%, offset by the 130 basis point occupancy decline. The pricing environment remains stable and our occupancy trends are firming.

Same store expense growth in the quarter is impacted by the rollout of ancillary services to the Brookdale units and related start-up expenses. Excluding this ancillary service expense, year-over-year same store expense growth in the quarter was 4.7%, substantially in line with our plans. This growth in operating cost is somewhat higher than the 3.5 to 4% we would expect to see over time. The excess over that normalized rate in the second quarter was driven primarily by our staffing levels, which are reflected in two ways. First, it has been a key initiative over the last two years to reduce vacancy of our community level management teams, generally executive directors and health care coordinators. Retention of local management is one of the most important drivers to improving long-term operating performance, and we have been quite successful in this effort. Over the last year, we have reduced the number of vacant management conditions in our communities by approximately 50. Let me give you some numbers to give you some perspective on the benefits of our efforts.

The difference between a community that has had zero turnover at the senior level over the last year -- we had 108 of those communities -- and a community where we had three positions turn over during the last year -- we had 58 of those communities -- shows up in both occupancy, where there is a difference of 8 points, low 90s versus low 80s, and operating margin where there was also an 8-point difference, high 30s versus high 20s. Second, we are positioning our assisted living portfolio for continued growth. I would point to some examples of this repositioning. As described last quarter, we have added 50 salespeople in the last year to beef up our sales efforts on the front line. Our spending is also incrementally higher for advertising and other lead-generating activities. We have also made significant qualitative changes in the dining programs with a modest increase in cost. These incremental investments are already providing positive results as evidenced by our occupancy and rate trends described earlier by Bill. The increase in these two areas accounted for over 40% of the nominal dollar increase in our same-store expenses over last year. Excluding these items, our same store expense increase was less than 3.5%.

Third, we did see some increase in commodity related costs. These commodity related costs which include items such as supplies and utilities account for 18% of our operating cost and current annual rate of increase for these items is approximately 6 to 7%. Most of the increase was contemplated in our plan for 2008 and our costs are running close to where we thought they would be. With respect to our balance sheet, during the second quarter we placed $143 million of supplemental mortgage financing on our assets, producing $140 million in net proceeds. The balance on our revolving line of credit decreased from $203 million end of Q1 to $50 million at the end of Q2. We've received questions about access to financing, because of widely publicized uncertainties in the debt market generally and more specifically related to Fannie Mae and Freddie Mac. To be clear, we have completed substantially all of the asset level financing we intend to complete in 2008. For 2009, we have only $49 million of secured financing maturing and for 2010, only $26 million. Our corporate line matures in May 2009 and, at that point, we would expect to have only a modest outstanding balance. To conclude, let me turn the call back to Bill Sheriff.

We are starting the second part of the year a bit behind where we thought we would be in terms of occupancy, but we have really good momentum for July and August. If things continue improving as they have recently, and we tend to believe they will, we would expect double-digit growth for the year. As a timing matter, we expect Q3 results to be possibly below Q2 because of seasonality of some of our expenses, particularly utilities, and consistent with prior years. And we expect Q4 to exceed both Q2 and Q3 results. Let me conclude by saying I feel a lot better about things today than I did in early April. While we are not ready to declare victory, I am cautiously optimistic. The occupancy and NPD trends we are seeing support that feeling. We continually seek to improve our business and have made decision to invest in certain areas like the sales organization and management of assisted living portfolio which has such a significant long-term upside potential. We believe that we are focused on managing those elements of our business that drive results and look forward to seeing that hard work pay off in the coming quarters. And at this point, we would open it up for questions.

(OPERATOR INSTRUCTIONS) We will pause for just a brief moment to compile the Q&A roster. Our first question comes from the line of Jay Habermann.

Hi, good morning. Here with Sloan Bohlen as well. Bill, just started off with your comments with regard to the firming in occupancy. It does seem to run counter to the trends we are still seeing in the housing market. And I am just curious to get your thoughts. Is it -- do you think more a function of the beefing up on the expense side and obviously reducing the turnover at the facilities? Or are you seeing it really just improving sort of demand from the customer?

It is a combination of factors. There is the -- the continued pent-up demand I think is beginning to be evidenced across the sector. We certainly believe that some of the investments we have made are beginning to bear fruit. And we think the perception of the consumer is -- though there is not a total sense of bottoming, is definitely improving.

Okay. And you mentioned the increase 100 basis points, I guess, from the lows. Are you still seeing that sort of trend continue? I guess with the recent data?

Our most recent data and outlook and the book at what we have for August continues the trend that we saw in July.

Okay. And then with regard to share repurchase, I know you mentioned that the $20 million -- and you will be back in the market again. What is the expected timing for completing the $150 million? Is that the year-end agenda or is that going to likely persist into next year.

The approval extended through the next year and we are not going give the specifics.

Okay. One further question on the litigation. The $8 million reserve you've set aside that the point. Can you give us a sense of how you arrived at that number and obviously, if settlements don't go forward with the second case, where do you potentially see that number going?

Well, this litigation -- obviously it has been in our securities documents since the time of the IPO, so this has been around for some time. We make a judgment around what we believe our ultimate exposure to be, and that's what we have recorded.

Okay. And then just one -- sorry one other question on G&A. Is the most recent quarter the likely run rate for the balance of the year?

Well, the G&A numbers do -- G&A numbers with move around a million or two a quarter, but in general, yes. Remember the G&A number we report includes the noncash stock comp and the integration costs, including the litigation reserve for this quarter.

And Sloan has a question as well.

Yes, just one quick one for Mark. I am trying to reconcile a couple of items on the cash flow statement on the balance sheet with regard to the debt repayment you did in the quarter and the $140 million in refinancings. Can you reconcile that with the jump, kind of the big jump in current liabilities? And specifically, did you guys issue any more debt in the quarter? Or no?

Well, in the cash flow statement, you show the gross amount of new debt and the gross amount of paydowns. So -- off line, we can trace through it a little more fully. The primary issue related to the current maturities of debt, which I think is what you are referring to --

Right.

We have, again -- in 2009 net of the extensions that we have we have $49 million worth of maturities in 2009. Some of our extensions include MAC provisions and because of that are classified as current from an accounting standpoint, but we have every intention to extend those maturities in 2009.

Okay. So just to be clear, there wasn't any other unsecured financing taken out in the quarter?

No.

Okay. All right, thank you.

Our next question comes from the line of Adam Feinstein.

Yes, hi. Just a few questions here. Just -- maybe just on the pricing, it was -- seems like price something holding up well. Kind of countered to how we would think -- you talked about occupancy getting better in July and August. Just curious if your outlook on pricing is still the same also, as we think about the ramp-up in occupancy. And then just curious whether you are seeing a lot of difference in the different geographies also with respect to pricing?

Our outlook on pricing is much the same. We are -- there are a little bit of geographic weakness as I mentioned, but the fundamentals of the sector continue to be very strong, as well as I think they are continuing to be good pay-off from our branding efforts and the other investments that we've made and it's a combination of all the factors.

Okay. Great. And then just with respect to the guidance. You had said that you are comfortable with a double-digit growth, but is that -- before you were talking about 15 to 20% CFFO growth. So could you just describe a little bit more detail?

Without trying to be specific, as I said, we are starting the second half of the year below where we expected to start it. And we do think the trends that we have seen recently -- we think they are sustainable but still a very uncertain environment, and we would tend to believe that if the trends stayed at a double-digit growth is not out of the question.

Okay. Great. And then just as you guys think about your business model and just -- obviously there has been a lot of market concern about occupancy rates and they have come down a little bit but not in a huge way. Can you just talk about, just what ability you have to bring down costs to the extent the occupancy does move lower just based on your past experience in terms of managing through that.

I think we have always had the ability, particularly in the assisted living part of the business, and tighter equation and we're trying to learn that in the other business, to make sure we adjust cost expenses pretty directly occupancy. We have continued our efforts and we have taken out the areas where we have specifically and intentionally invested additional dollars in the staffing elements of our management and sales force and in the food basis our costs have been quite in line when you talk those factors out, and we would continue to have a strong focus on that. Our G&A costs have continued to trend lower. So we -- we would expect to continue to be able to respond if that were the case.

Okay, thank you very much.

Our next question comes from the line of Ryan Daniels.

[Christina Blajeck] for Ryan this morning. Can you start by just talking a bit more about inflationary pressures on the business and how you are managing them? I guess, more specific it appears that some direct costs are increasing, for example food and energy while others are decreasing such as labor and insurance. Any thoughts you can provide will be helpful.

Sure. I mean, as I said, about -- the most broad definition of a commodity related cost for us would call about 18% of our operating costs commodity related. That is primarily food, supplies and electric and gas within the utility area. In the quarter, clearly, there was some pressure, particularly related to natural gas, for example, which in some of our markets is largely an open-market commodity. Clearly there is general pressure upward on food costs. In some of these areas, we are able to offset the commodity pressure either by further advances in our purchasing programs, where we drive down unit cost by aggregating the buying volume, or for example, in the dining area, we are able within some range to make substitutions in the structure of the menus for example. On the labor side, I think we continue to see cost inflation at the level we have seen over -- over the recent history. So that 15 to 18% of the cost structure that I think is really at issue here.

Okay. Great. And then just -- maybe a little bit more color on the M3 initiatives you had talked about in your prepared comments. How many markets is the program currently implemented in, and is the rollout to additional markets still on track?

We are up to 15 at this point in time with others kind in the line and in the schedule. And we continue to see month-to-month improvement in the cross referrals. The total lead generation activity and as well as the transfers -- the intranetwork transfers within those. And so, across the board, our thesis continues to be validated.

Okay, great, thank you. And then finally just a follow-up question on the share repurchase program. Given your current share price, are you further assessing the dividend. In other words, is there any additional consideration regarding further dividend cuts and even -- perhaps in even larger share repurchase?

Yes, this is Bill. It is a reasonable question. I haven't looked the last week or so, but I think if you look where our company is trading on a comparable basis versus the other -- our peers, I think we are either kind of trading at the same levels or even wider in a case or two. And none of those companies pay a dividend. So if you look at it today, the investor base is giving us really almost no credit for the dividend. We think the -- the Board right now thinks that what we are paying a dividend is -- we are more than comfortable with, but also if there is a better use of that capital, they are certainly something that you have to explore or as we said at the beginning of the year, our goal is really to develop anything possible to increase shareholder value. And it will be a discussion item, but it is really something that you want to look at because the stock price at a point in time today. We are seeing lots of positive improvements on the operating side, but a logical conclusion could be is that the stock price continues where it is today, while our operating metrics continue to be what they are, a more dramatic increase in the stock repurchase plan should be a topic of conversation and will be with the Board.

Great, thank you.

Our next question comes from the line of Jerry Doctrow.

A handful of things. Just CapEx, it looked like it was up a little bit on per unit basis. I was just wondering if you could give us some guidance as to where you expect that going, really maintenance Cap Ex.

You know there is a little bit of seasonality in the CapEx projects, Jerry. We are getting into the summertime where you do increase the volume of some of the outdoor activities at some level. The run rate you see here is somewhat reflective. It could tick up a bit as we go through the summer for sure but I think it is in a range.

For the year basis trending if you're trending out from this quarter, that would be a decent run rate?

Yes, and again if it trends up $1 million dollars a quarter or so, that is certainly possible, but I think this is the right order of magnitude.

All right, that's fine. I want to come back and talk a little bit more about incentives. Obviously you are having some great success driving occupancy up here. Are you doing discounting, free rents, helping people with moving, any of that sort of stuff? Can we get a little more color on that?

We have always had a basic element of what we call the toolbox that our field folks have at their disposal to -- to effect the closing on a sale. We have added some very select, very focused, modest additional incentives within that that are having an effect, and those are, again, used very selectively and very focused in areas. But there is not a significant change in what we've -- what we've done with regard to incentives.

In terms of average daily rates, entrance fee, receipts that are per unit, I guess, you would see those continuing to sort of trend as we have -- I guess it has been sort of a 5% sort of move or 5 to 6% on rates. That still feels good?

Yes, we think that it's a combination of all the elements of base rate increase, street rate increase, the investments we are making in repositioning some assets and those elements. But we feel that is going to continue.

Okay. Just a couple more -- how about tax rate going forward? Is that --

I think you will find the tax information in the Q and effectively the taxes we pay right now are state and local taxes, which are reflected in the CFFO numbers.

Okay. And sort of combination, I think. One is, you -- given capital markets and stuff, do you continue -- do you plan to continue with all the expansion efforts and repositioning some things under way and then I also just want to clarify how much additional unencumbered assets you have to place debt on?

I will take kind of the -- first part of that which -- well, Mark, why don't you take --

As it relates to the unencumbered debt, we can follow up with you later other than.

Okay.

On the -- on the expansion stuff, we are continuing as we said earlier in the year. We shifted from those communities that we own to lease communities. We have a pretty healthy step of -- of expansions on the board, and we simply shifted the mix. Our rate partners are very pleased to fund the expansions on those facilities with very attractive returns.

Okay. And then just -- one or two global things. I think -- Bill, I think I sort of know the answers to this but I think it is still one of those things that's on people's minds. In terms of Fortress, was Fortress a seller of any stock here in the buybacks and if you can just sort of state again maybe where those investments are held and whether you have got any pressure on redemptions.

No, Fortress has not sold any stock. Obviously we can't comment on to our plans are. This is our -- at least my favorite company. We have no obligation any time soon to sell any stock. And we are committed to Brookdale and expect to be the largest holder of this Company for the foreseeable future. So nothing has changed. And we haven't sold many stock.

All right, thanks. The last thing -- I don't think this is imminent, but obviously the [Rydeal] legislation, the REIT legislation that creates some flexibility here. Does that offer any opportunities for Brookdale, particularly I am thinking down the road when the tax shelters start maybe disappearing.

I don't know at this point in time -- that will be getting into a lot of speculation and there is a lot to be understood and studied about all of that, but it is nothing that we are seeing in the near future.

All right, thanks a lot.

Our next question comes from the line of Frank Morgan.

Good morning, just a follow-up on the occupancy trends. Just curious about the actual -- any kind of special incentives or discounts on entry fees given that number has popped up and seems to be growing again at a good rate. As far as the improvement we are seeing sequentially so far, do you characterize that as being more than just what would typically be seasonal improvement?

On the entry fees, there is nothing significant -- well, nothing different from what we normally do in those areas. I think it is the basic Xs and Os there, as well as the issue of the pent-up demand. You see an increasing amount of -- number of people that come in and say I finally sold my home and I am ready to move in. So managing that bigger pipeline for a little more extended period of time, but we do get -- we see good movement.

I guess as follow-up to that I was going to ask what people in the field are actually saying from an anecdotal basis, though. Your comments about I finally sold my home, I'm ready to move. Anything else you are hearing at the local level. Are you hearing that in any particular part of the country more than another? Thanks.

Well, certainly if there are certain markets that are a little harder than -- so to speak, than others. But we -- we are seeing -- we are seeing movement in all markets.

Okay, thanks.

Our next question comes from the line of Rob Mains.

Thanks. First one, Frank's second question I'd be interested in knowing the answer to, whether you feel that the sequential occupancy gain is greater than what would you normally see this time of year?

I don't think there is a seasonality perspective to it, particularly when you look at a couple of the markets that are typically -- actually being the softer part of the year and they were actually good participants in the gains. So I think we are not just seeing seasonality here.

Okay. And then another question on the entry fees. I know that you have a lot of flexibility in some communities about how to structure the entry fees, refundable versus nonrefundable. Anything unusual there or you kind of suggested just a basic building of the entry fee business as it used to be.

It's always a very dynamic equation that we continually analyze, the mix of sales, the offerings of the plans and tweak those, but there is no significant change in the fundamental economics or the basic presentation of what we have.

Okay. You wouldn't attribute the -- looks like -- you are not tweaking, in effect, the supply of the entry fees in any way, this is truly a demand driven increase?

That's correct.

Okay. In your prepared comments, I didn't -- I don't think I wrote it down correctly. I think you said that you are seeing a 3.5% increase, is that in occupancy markets where there is new sales personnel?

Yes, in that illustration, yes.

What is going into that? Obviously -- I assume it is more than just throwing bodies at it. Is it also the way you are structuring the sales force is some way?

The reorganization that took place at the beginning of the year aligned -- changed significant alignments and all, but it's fundamentally getting people on the ground where we don't have one sales person handling four buildings. Looking at their -- the training, preparation and coordination. And I think on all fronts we are making good positive strides.

So effectively, it is kind of throwing bodies at it, in that you were kind of understaffed in a sales effort and now you're just bringing it up to where you need to be to be able to drive the revenues.

I think that is correct.

All right. That's what I had. Thank you.

Our next question comes from the line of Stefan Mykytiuk.

Good morning. Stefan Mykytiuk from Pike Place. Just wondering, can you talk about move-ins versus move-outs? Some of your competitors have talked about that their issue has lately been less about the level of move-ins but that their move-outs have been higher than normal. And it sounds like from what you are saying, it's your move-ins that have picked up lately and the move-outs are kind of staying flat? That what you are seeing?

When it comes to move-ins, we have actually seen a lengthening of length of stay in both our AL and our memory care elements of the business, which speaks to a number different issues when you see the length of stay increasing, but a bigger component of it is -- a much bigger component of it is the increased move-ins.

Okay. And are you seeing -- is there any change in move-outs then? Material change in move-outs? Are people -- are people moving back home to save money or things like that?

There is -- there is no significant change. Very minor in any piece of that. Nothing that could you say is -- is a major change element.

Okay. So if the move-ins are up, it is obviously demand or it's a big combination of the demand and then your efforts to market better.

We have made a lot of investments. We are focusing on execution and -- but we also believe that the pent-up demand and other factors are improving.

Great. Thank you.

Our next question comes from the line of Jay Haberman.

Hi, it is Sloan actually again. I just have one quick follow-up. Year to date, I guess, with regards to paying down the revolver next May. Year to date, you have raised over $400 million either through refinancings or through new debt. Could you give us a sense what your capacity for new financings -- or new refinancings are for the rest of the year, and is that the plan to pay down quite a bit of that line?

Well, again, the operative issue to the market is our debt maturities are -- we don't have to do a lot of financing. That's the point. And the next maturities we face are '09 and '10 in $50 million and $28 million or $30 million amounts. So they are very manageable. We are always assessing the range of financings that we can do in the market. It includes debt financing. It includes lease financing and other kinds of financing. And so it really becomes a cost-to-capital and return-on-capital question at any moment in time.

And also, we -- we finance at the asset level as opposed to incremental corporate debt and, as we said, our intention is to use the asset-based financing, which is, A, available and, B, relatively inexpensive especially in these credit markets to pay down our corporate line in lieu of issuing equity. And we've been incredibly successful doing that. I wouldn't say that there a lot of assets that are -- we do have unencumbered assets, but we don't really feel the need to put on any more leverage in this market and we're appropriate leveraged, neither under or overleveraged. But I think our financing, for the most part, are done for a while.

Okay. I guess we are just trying to get a sense of how much of it's going to come from free cash flow, considering also the dividend and the share repurchases.

How much of what?

How much of -- how much of the capacity to pay that debt down.

Again, I think the line is, I don't know, $50 million now. It's -- at maturity, it should be there or below that. And so we have assets, but again a $50 million corporate line in this company is -- there are plenty of options there so.

It might be gone, but we already have a number of options to just replace that.

Hi, guys, it is Jay with one quick follow-up as well. Can you just comment on any -- are your lease rates fairly predictable over the next year or so or do you have any recess that might affect the expense there?

We do not have any substantial resets. You do have the normal bumps in the rents that go along, but these leases are generally long term in terms of the profile.

So nothing in the near term that would change that to any degree other than just normal resets.

Correct.

Okay. Thank you.

Our final question comes from Hanzhong Li.

Hi guys, just going back to the RC. So $50 million was drawn at the end of the quarter. What is it drawn it at this point, how much is drawn on it right now?

Again we report financial information quarterly. It's a similar number.

Got you. And then has the commitment, that 270 gone down at all? I saw that you had some proceeds and so forth or is it still at 270?

There is -- as we do refinancings -- it sounds like you read the amendment to our credit agreement?

Yes.

There is a Byzantine formula which I won't even try to recite, that does change the capacity depending on volumes of proceeds over target levels.

Right.

The maximum commitment has come down somewhat. I mean we don't need a line that of the size that it was because we were doing lots of acquisitions. And so paying for something you don't need and so what we basically did is agree to reduce it, which we were going to do anyways, in exchange basically for our ability to buy back stock. But again, as long as we are not making acquisitions, a $50 million kind of revolver is about the right thing, size.

So what is the commitment amount on RC right now then?

It's about $180 million, $185 million in terms of cash borrowing capacity.

Cash borrowing capacity. Okay. And then in terms -- the $20 million that you guy repurchased, that goes to $50 million, so you guys have about $30 million more before that kicks in as well too in terms of the dollar-for-dollar reduction on the RC?

Again I don't want to try to recite the formula in the credit agreement here. Isn't quite that direct of a relationship. Our cash borrowing capacity now is $183 million I believe. Okay. Great. Thanks a lot, guys.

With that, we would like to thank you for your participation. We will be around. Give us a call with your have follow-up questions. Thank you very much.

Ladies and gentlemen, thank you for joining us for today's Brookdale Senior Living second quarter 2008 earnings conference call. This does conclude today's conference call and you may now disconnect your line.