Brookdale Senior Living Inc (BKD) 2008 Q4 法說會逐字稿

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

Mr. Roadman, you may begin your conference.

Thank you, Nicole. Good morning, everyone. We appreciate you allowing us to start bright and early this morning. I want to welcome you to the fourth quarter and full year earnings call for Brookdale Senior Living. Joining us today are Bill Sheriff, our Chief Executive Officer, and Mark Ohlendorf, our Co-President and Chief Financial Officer. Also present is Andy Smith, our Executive Vice President and General Counsel. Before I turn the call over to Bill, as Nicole mentioned, this call is being recorded. A replay will be available through March 9th by calling 1-800-642-1687 within the US or 706-645-9291 outside the US and referencing the access code 87021756. This call will also be available via webcast on our website, www.brookdaleliving.com for three months following the call.

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

Thank you, Ross. I would like to extend my welcome and thank you for joining us this morning. On today's call, we will discuss the results and accomplishments of 2008, the results of the fourth quarter, recent actions we have taken to address virtually all of our near-term debt maturities, including the renewal of our credit line, and finally an overview of our current sense of 2009. We are in the midst of an extremely difficult economic environment that certainly presents challenges, but also offers multiple opportunities. Despite the environment, our occupancy has generally held. Occupancy hit a low point in June at just under 89% and ended the year at 89.5%. In fact, over the last two years, occupancy has moved in a range of only 2%. At the same time, we have posted 5% to 6% increases in revenue per unit.

The senior living business continues to have a strong underlying fundamental serving real needs of its customers, which mitigates many challenges created by the general economic environment today. Over the last three years, I believe we have built the best platform in the industry. Today we have the organization, systems and a diverse product offering that creates unique advantages that allow us to capitalize on revenues and expense opportunities even in this time. Our goal in 2009 is to continue to improve our position and demonstrate the very attractive cash flow generation power of this business. Turning to the operating results, we are very pleased with the results of the fourth quarter. It indicated some very positive elements in spite of the challenging environment. Our CFFO was $0.35 per share, a good increase versus Q3's $0.30. The improvement came primarily through lower cost and increased contribution from ancillary services, as well as higher entry fee sales.

Average occupancy held flat with the third quarter and we achieved revenue per unit growth of 5.2% versus Q4 of 2007. Our ancillary services continue to excel and ancillary operating income grew 59% during the fourth quarter versus the fourth quarter of 2007. And our overall operating margin improved to 33.5% from Q3's 32.4%, reflecting the initial effects of the comprehensive cost initiatives we undertook in Q4. We will discuss these cost initiatives in more detail later. With regard to our G&A, excluding noncash compensation expense, it decreased by almost $500,000 from last quarter. Our ancillary services initiatives continue to be a very bright spot for us. These services are natural, health care-driven service needs of our residents and we continue to expand our platform both in terms of the number of communities being served, as well as capture rate of these services by existing residents.

We have seen the power of providing a second service, home health, on top of the therapy infrastructure, hence materially increasing profitability while further supporting occupancy. Being third-party reimbursed and because we are serving our own residents, this part of our business is less impacted by the economy and we continue to see strong growth from the maturation of existing clinics. As the need for these supportive services continue to grow in the market, it is a key differentiator for us, especially for higher acuity prospects. During 2008 we also made very significant progress on our platform development. We instituted a new organizational structure that changed to a market orientation from a product oriented focus. We expanded the depth of product knowledge of our field organization, while reducing management layers, giving broader scopes of responsibility.

I just can't say enough about how focused the organization has become and how ready it is to tackle the challenges of 2009. Supporting this new organization was the completion of the Companywide integration of most key financial systems. Our improved sales and marketing execution was very evident during the latter half of last year, gaining back occupancy that we lost in the early part of the year through market responsive programs. Results of all of this was that for the year our facility operating income was virtually flat about 2007, a very good performance given the year's adverse environment. Finally on the balance sheet front, we ended the year with only the line of credit as our primary 2009 maturity issue. We are extremely pleased that we have now extended the line of credit. In these challenging capital markets, completing a transaction like this is truly reflective of the strong fundamentals that underlie our business.

I believe this transaction, along with the expected exercise of our contractual extension options on certain of our mortgage debt, will address virtually all of our debt maturities this year. Consistent with what we had mentioned on our last earnings call, we decided to suspend our dividend with the intention of using that cash flow to deleverage. I will now turn call over to Mark to provide more detail on the financial results of the quarter and the year before we discuss 2009.

Thanks, Bill. Let me start by looking at some highlights of our financial performance for the quarter. Recurring cash from facility operations, or CFFO, for the quarter was $0.35 a share, excluding integration costs and hurricane-related expenses of approximately $0.03 a share. In the fourth quarter, we recorded $0.01 per share of hurricane related expenses and incurred $0.02 per share of integration and severance related costs. Average occupancy held flat with the third quarter and was down approximately 90 basis points from Q4 '07. While the environment is making our sales efforts more challenging, our execution continues to improve with a higher closing ratio of the quality leads we are producing. All of our sales and marketing initiatives, like M3, the enhanced website, and expanded arrangements with referral sources were affected. We continue to use targeted incentives, though we utilized fewer incentives in Q4 than in Q3.

In Q4, 57% of our move-ins received some incentive versus 64% in Q3 and the dollar amount of the average incentive per move-in was 35% lower in Q4 compared to Q3. We did see a small decrease in occupancy from the beginning of the quarter to the end of the quarter and nearly all of that happened in November, but occupancy stabilized by quarter end. Our Q4 '08 over Q4 '07 revenue per unit growth was 5.2% and 6% for the full year. The components of this 5.2% revenue increase consisted of rate growth of approximately 2.7% and ancillary services added another 2.5% of growth, as we continue to add more supportive services at positive incremental economics. As Bill said, our ancillary services continue to perform well. The platform now serves 35,000 units for therapy services and 16,700 units for our home health agencies. Overall in Q4, $143 per unit per month of operating income across all units served by our ancillary services dropped to the bottom-line, versus $126 per unit in Q3.

As you can see, our overall average per unit monthly contribution is already close to the target of $150 that we have consistently indicated. In fact, we think there is more upside to that number. As a point of reference, for the legacy ARC portfolio, the average monthly operating income per occupied unit reached $222 in the fourth quarter, though that portfolio has a greater proportion of skilled nursing units than our total portfolio. Turning to same-store results, our results for Q4 '08 over Q4 '07, showed an increase in revenue of 4.1% as a result of an average revenue per unit increase of 5.2% and a decline in occupancy of 1%. Expenses grew at 7.1%, resulting in a same-store NOI decrease of 1.3%. Looking at the same-store results without ancillary services, average revenue per unit increased 2.6%, expenses grew at 5.7% or $15.6 million, resulting in a same-store NOI decrease of 2.9%.

Major components reflecting this cost increase include largely controllable costs, which make up about 80% of our operating cost structure, increased by 1.1% between the periods or $2.8 million. These controllable costs include labor, benefits, food, supplies and repairs and maintenance. Of the remaining 20%, utilities and real estate taxes together increased by 11.1% between the periods or $3.2 million. Of the other non-controllable cost components, our reserving activities for insurance and bad debts and community feed deferral accounting increased by $8 million. Well over one-half of this amount relates to a net increase in cost recognized related to the accounting for community fee deferrals, which we started in the second quarter of 2007. The remaining $1.5 million relates to various centralized support services. Overall, our quarter-over-quarter same-store cost growth was 3.5% to 4%, excluding the impact of the community fee expense deferral.

We are pleased with the slow rate of growth reflected in our controllable costs for the quarter and believe that this reflects the beginning of significant cost containment activities. You will note that our reported results for 2008 include a goodwill and asset impairment charge of $220 million. This charge is largely a result of accounting guidance in the context of the depressed equity market. While we believe that it does not reflect any change in the long-term fundamentals for our business, we did recognize this impairment in the fourth quarter. If you look across all sectors at companies that are reporting their 2008 results, there is a high frequency of goodwill impairments occurring, again, largely due to this accounting guidance and the depressed pricing in the public equity markets. As Bill indicated, we have made significant progress in the quarter in improving our debt maturity profile.

As we announced, we have extended the line of credit to August, 2010. As our filings will show, the new line includes total commitments of $230 million and has some typical features of today's bank market, including a commitment that declines over time, higher pricing, and a revised covenant package. As it relates to our mortgage debt, we now have virtually no mortgage debt maturities without extension rights until 2011. We have accelerated the extension on $88 million of the $225 million of mortgage debt that was classified as a current liability at September 30 and expect the remaining $131 million to be extended in due course when the contractual options become available in the second quarter of '09. Before I turn the call back to Bill to discuss our sense of operating fundamentals for 2009, let me leave you with some thoughts on Brookdale's general liquidity position going into the year.

Our amended line contains a reduced level of total commitments and commitments that decline over time, but given our recent decision to suspend the dividend, the need for higher borrowing capacity is greatly diminished. In fact we plan to use the cash flow generated by our operations to deleverage, initially by reducing the debt outstanding on our Corporate line. We ended 2008 with $54 million of unrestricted cash and we expect to close on two asset sale transactions in the near-term that will yield cash proceeds of roughly $17 million. We continue to focus on the level of uncertainty that we face going into 2009 and have taken various steps to aggressively reduce our uses of capital. This is especially the case in the area of capital spending, including expansion activities where our net use of capital will decline to approximately $60 million in 2009 from $121 million in 2008, of which approximately $25 million is for recurring property level CapEx.

The remaining amount is focused on projects which we expect will generate high incremental returns and, given the nature of this, we are confident in our ability to manage the spend level should that need arrive. Finally on the expansion side, virtually all of the capital expenditures going forward in that category will be funded either through our lessor partners or by contracted construction loans. I will now turn the call back over to Bill for comments about 2009.

Well, looking forward to 2009, the greatest uncertainty will be occupancy. We anticipate pressure on occupancy and expect it to decline from its current level by a point or two, maybe slightly more if conditions continue to deteriorate through the year. As to revenue per unit, we are a bit more positive and expect to achieve positive growth in 2009. As Mark has described, there are multiple factors contributing to revenue per unit growth. First. rate growth. Taking into account geographic and product line diversity, not all markets or product lines are affected the same. Our rate increases to residents and into the market will vary from 0% to 6%. Second, the ancillary contribution, which is less impacted by the general market, is expected to show growth consistent with our experience in 2008. In late settlement, early October, our team recognized the great uncertainty unfolding, which was going to put additional pressure on the business.

We put out a call to action. We began to focus more aggressively on expenses at all levels of the organization. We have made decisions affecting virtually all of our major cost items. Some will be permanent, some will be temporary. However, no cuts were made to costs that would compromise our commitment to quality of care. We also know that we had an unique opportunity. A receptive audience in both our internal organization and our residents to address cost issues in a different manner. Our residents, quite frankly, believe that they have seen this movie before and have provided good input. Looking at the community related expenses, as we have said, our commitment was to be aggressive on cost but not compromise quality of care. For 2009, we expect no more than 1% to 1.5% growth in controllable community expenses, which account for about 80% of our cost structure.

Controllable cost include things like labor, food, travel, training and supplies and we have taken many actions, such as freezing salaries and wages, reducing non-direct care service position hours from 40 hours per week to 37.5 hours per week. We have also adjusted various benefit plans, such as suspending the 401(k) match and adjusting paid time off policies, reducing travel and obtaining additional purchase savings. In total, we expect cost reductions and cost abatements will keep the controllable costs within our target range. Adding in such other costs such as utilities, real estate and insurance, we expect overall expense growth to be no more than 2.5% to 3%. Our fundamental goal this year is to main a positive spread between the level of revenue growth and that of expense growth. Again, without compromising any aspect of care, we will aggressively manage expenses toward that goal and with the help and support of our residents and associates.

With regard to our overhead or G&A, we expect our G&A to be largely unchanged year-over-year, in spite of the growth in G&A support for the ancillary services. We reduced overhead FTEs by 100 in 2008 due to the evolution and refinement of the new organization, as well as efficiencies gained as our system platform has consolidated. Our G&A as a percentage of revenue will decline again in 2009. Since we have completed most of the platform integration work, we expect integration costs to be much lower than historically and as a result we will no longer call these out separately. As Mark said, we have also addressed containing routine capital expenditures, which impacts CFFO. Routine CapEx is expected to be in the $25 million range for the year. Turning to entry fee cash flow.

Given the environment, we had good results in Q4 and we saw improvements during the year, particularly with our repositioning actions at the former MBA communities. In 2009, even taking into account the changed environment, we do expect results to be better than 2008. While entry fee sales have been down, refunds have continued at their historical pace. As a result, at the end of 2008, we had an inventory of 460 entry fee idle units to sell, with an estimated sales value of nearly $83 million, of which there are only $7.6 million of refund attachments left. This means fewer sales produced more net cash flow. We have these products better positioned and while the impact of the government stimulus efforts will, what they will have on home resales is unclear, particularly as to timing, it should help and could result in some upside.

Any market where we have seen improvement in home resales in the recent past, we have seen increased entry fee sales. While we cannot give specific CFFO guidance, we wanted to give some description of what we expect on the cost and capital spending side, as well as the expectation for the ancillary services contribution and entry fee incomes. We are off to a good start in 2009. It is still early in the first quarter, but we have already seen strong validation of our cost control and reduction efforts, which may exceed our expectations. Occupancy we did see a slight decline, typical of January, and February looks to be flat with beginning and ending occupancy equal. Ancillary services are above plan and entry fee sales will be higher than Q1 of 2008. We feel very good about the organization's response to the call to action.

Everyone is incredibly focused on maintaining occupancy, affecting incremental margin from added services, they are providing quality service and care at high standards and at the same time achieving the lowest possible cost structure relative to those high standards. Combine this with the completion of our line of credit renewal and other extensions and we are in a good position. We believe companies with good operating fundamentals, like us, are going to come out of this environment stronger than before. The current environment has and will create opportunities for growth and being well positioned will allow us to selectively capitalize on these potential opportunities. We will now turn the call back to the operator to begin the question-and-answer session.

( Operator Instructions ) Your first question is from Mark Biffert of Oppenheimer and Company.

Good morning, guys. Mark, I was wondering if you could give some of the details in terms of the rate that you had on the extensions?

Again, the extensions that were affected in the quarter and there are a couple of more of these that will be affected in the middle of '09, those are contractual extension arrangements. So the rates remain largely unchanged.

Okay. You didn't have to pay a bump in the -- in the fee for that? To extend it?

Somewhat, but I think the change in pricing is pretty modest given -- given today's climate.

Okay. And then can you talk a little bit about the environment and there is a lot of talk out there about M&A activity in the -- in the senior housing space and the potential for you guys getting greater management agreements and your -- your feeling in terms of whether -- how much more you think you can add to your platform in this environment.

Well, in this environment, we are going to be very much focused on executing our plan and in the near-term. And we will be very disciplined about looking at any opportunities. If they are slim opportunities with slim margins, they may be more opportunity for distraction than they are for significant gains. So our focus will be more on the longer term basis.

Okay. So you don't expect to be doing a lot of acquisitions? It will be more of taking on management agreements versus acquisitions?

I would doubt that we would be looking to take on management agreements per se, unless they are very extraordinary attractive terms. There is -- we have never created a lot of wealth off of just pure management agreements.

Okay. And then -- if you could talk a little bit about the risk of caps going in on any of the third party revenue given the significant increase. Is home health impacted by caps or is that just the therapy services?

Well, the caps have been extended for therapy services and then there is nothing currently slated for home health. There are some things we read in the budget package that suggest that there might come some pressure on home health, but it will be out there a ways.

Okay. And then can you talk a little bit about what you are hearing from your tenants in terms of their attitudes. The people that are moving out, kind of what is their -- their single main driver for moving out. And how much children losing their jobs has impacted occupancy over the last two quarters?

Well, we certainly see some element, but we've always seen some element of financial move-outs and maybe there is a slight uptick on that. But an interesting note is that our overall attrition rates haven't really changed much, which, of course, as we are mitigating some of that effect through our ancillary services and our other support elements. We are very, very focused on working with families if they need to downsize in terms of an apartment, et all. We see some of that activity and we are very focused on working on that. As well as making sure if they need to transition to one of our other communities within a market for higher level service or care, we working with them more and more effectively every day in that regard as well. Certainly the consumer confidence is a significant factor and that still remains a concern.

Okay. I'll get back in the queue.

Your next question is from Ryan Daniels of William Blair.

Bill, I just wanted to start with some of your commentary on the 2009 outlook. It sounds like your use of incentives actually tapered back a little bit in the fourth quarter and you saw reasonably stable occupancy year-over-year in the first quarter, but you are still anticipating that you might see weaker kind of same-store occupancy if we look over the next 12 months. Is there anything in particular driving that given some of the stability or firming you have actually seen the last three or four months?

Well, it is just the overall general concern of the economy and the consumer confidence factor that is going to continue to have some pressure on occupancy. We think it is not going to drop precipitously, like some folks would want to predict, but we think the underlying fundamentals of our business, again, are there in terms of the fact that we serve basic needs of the consumer.

Have you seen your close rates change significantly year-to-date or has that been pretty stable?

We have seen our closing rates, both in the fourth quarter and the first quarter, to actually increase significantly. We do see less people just shopping or thinking about, the inquiries and things we get seem to be a higher quality and a higher focus on people really looking to do something. Our people have been very, very focused on continuing to improve the closing rate and they have done that.

Okay. Great. And then can you talk a little bit about the entrance fee communities. I noticed that you guys have the Brookdale home sales program and I am curious how effective that has been and if you actually have had to purchase any homes under your forward commitment or not that widely utilized yet.

It is not that widely utilized. It does stimulate a significant amount of traffic in our seminars as we help people focus on the issues of selling their homes. A very small percentage actually utilized any of that program and the whole history of that program has been well over a year. We've taken the title to one home, which we sold within 30 days. So that -- that part of it is very helpful in terms of getting people to start thinking through the process. So there a small percentage ever utilized any of that basis and that has been very stable as far as how many of those we have outstanding and the payment trends on them.

Okay. Great. And then, Mark, maybe if we could switch just to the revolver very quickly. Can you give us your balance on that at the end of the year, what was tapped on that $230 million now?

The cash borrowings at the end of the year were about $159 million. There are some additional amounts outstanding related to letters of credit. We should have the 10K on file here within the next several hours and it will give you the blow-by-blow on that.

Okay. Maybe this will be in the K, but the last question I had, could you just talk a little bit about the mandatory prepayments. It sounds like that is going to start shrinking through your time period that you have that. Can you give us a feel for how much cash will be dedicated to that in '09?

Sure. You really need to think about this in the context of what our plan is going forward. We are in a market right now that fundamentally is deleveraging, so as we move forward the primary focus of our deleveraging is around the Corporate line. The balance of our secured debt at the property level, as we have talked about several times, is -- is in pretty good shape. The actual amount of the commitment declines on a quarterly basis and you will see the schedule in the 10K when we file it. I think the important thing to note is although the commitment declines over time, if our operating cash flow continues at the level we have seen for the last couple of years, we will actually effect more deleveraging under the line than the commitment goes down and all of that is very consistent with what our general approach is as we go forward here.

Okay. Great, thanks. We will look for all the details in the Q. Okay. Thanks again.

Your next question is from Jerry Doctrow of Stifel Nicolaus.

-- and it was a nice quarter given all of the stuff going on out there. I just had a couple of things. One is on the REIT leases. Some of the REITS have been talking about CPI based escalators and obviously their rent is going down. I was curious as to whether your stuff is CPI totally or has floors or just what you are assuming in terms of increases in the rents next year, or this year really.

Jerry, it's Mark. It is actually a wide variety of inflater structures. We have some based on revenues, some based on CPI.

It is probably more that have caps then have floors.

Yes, yes. So clearly this kind of an environment could bring the level of inflater impact down a bit, but it certainly won't make it go away.

Okay. So -- but if we were looking at -- actually I don't have the numbers right here. But if we were assuming like 2.5% for something last year or 3% last year, you might be down 1%, 2% or something?

At the most. I would think -- again, it depends on what your assumptions are surrounding CPI and so forth, but if you could impact that number by 50 or 75 basis points, that would be fairly substantial I would think.

Okay. And that could indeed happen, because -- my assumption for CPI is zero I think. Okay. And then just CapEx. I thought, maybe I just misunderstood, but on the maintenance CapEx, I thought one of you said 15 and one of you said 25. But I wanted to just clarify that.

I believe -- well, we both intended to say 25 for '09.

Okay. So 25 is the maintenance CapEx and then it was 60 sort of in total, did I hear that correctly, including the income enhancing.

That's right. And, again, that is the net cash capital investment in CapEx for '09.

Okay. Okay. That's all for me. Thanks.

Your next question is from Jeff Englander of Standard & Poor's.

Good morning, guys. Quick question. Can you give us some sense on kind of nonessential services on the controllable expenses. Things you may be doing in terms of, for lack of a better term, quality of the food and frequency of the entertainment, things that don't directly impact, what I would say, is quality of care, but maybe the -- at the margin some of those things you might be doing?

Well, the quality of our food and food service program is a very critical part of it and maintaining that standard in services is there. We have a very intense effort on the purchasing side of that equation, as well as making sure that we are matching our menus and changing our menus to match the seasonality aspects and watching every bit of detail in that absolutely daily to make sure that we, again, can manage that overall cost aspect, at the same time, maintaining the quality. On the aspects of entertainment elements and things. We expect the creative elements of our team to both in terms of we utilize a lot of volunteers in that regard and all, but we certainly expect to continue to maintain good life enrichment programs across the -- across the Company.

I guess -- I guess and part of that my question is has there been cutbacks in frequency of some of those things?

I don't believe that there's been cutbacks in frequency.

The other question is, can you give us some sense of -- on the non-controllable expenses, given you have seen kind of a stabilization in fuel and some other costs, if -- if your outlook there, what the assumptions are underlying that?

Sure. Well, again, the two big items in the non-controllable area are utility costs and property taxes. And in -- in total, those two cost categories were up about 11% year-over-year. As we look forward into '09, we should see some moderation in the utility cost pressure. A significant part of our utility cost is regulated state electricity cost. So while we have seen moderation in commodity costs, exactly when that comes out of the rates is a bit uncertain. But we would expect to see that come down. It is also unlikely that you would see the same level of growth going forward on the property tax side, but as you know, the state and local governments are under a great deal of budget pressure right now and predicting exactly how that comes out is also somewhat difficult.

Great, thanks very much.

Your next question is from Sloan Bohlen of Goldman Sachs.

Good morning, guys. Just a question on the deleveraging front. You guys have mentioned that you have a couple of assets in the market right now. Do you guys have an outlook for what you might do in terms of asset sales or refinancings in 2009?

Sloan, actually those two transactions we are about to close are -- one is a sale leaseback transaction and one relates to liquidating part of a joint venture structure that we have got. The reality is, we don't have to do anything on the financing side as we go through '09, you have got to be very opportunistic in this kind of a market. So if we get good opportunities to extend the maturity profile of our debt a little further, we would certainly take advantage of that. Depending on pricing in the sale leaseback market, we might take a look at that, but we don't have any immediate plans in either of those areas.

Okay. Could you guys maybe give us a sense of what kind of availability there would be for new secured mortgage financing and in the case of asset sales, what the cap rate environment looks like right now.

We continue to see transactions occur, particularly for stabilized properties with the GSEs. So that market continues to -- continues to -- to close transactions. On the sale leaseback side, you certainly don't see the depth of that market that you would of 18 months ago or so. But we have got very long relationships with a number of our REIT partners and believe that there are transactions to be done there, depending on what we need to do.

Okay. And then on the, I guess, income enhancing CapEx spend for the year. What kind of returns are you guys looking for that? And is there a sense of how much of that -- is it going to be evenly spaced out throughout the year?

Well, by and large, those are projects that would be occurring during the year this year, so I am not sure I would suggest to you to model a big economic impact of that.

The kind of the balance of the ones that finishing start-up and all kind of wash in the year. But there is some improvement in this year. And typically, we would look at 13 plus un-leveraged returns as a minimum hurdle on any of that.

Great, thanks. Lastly just for Bill. You talked about some housing markets where you have seen some stability and how that has helped your occupancy in those markets. Could you maybe just give us a sense geographically where you are seeing some of that?

Well, it -- and again, it goes in different market areas, but one that may be quite interesting is one of the pockets within Florida saw a good -- actually saw some good house movement in, starting in the fourth quarter and extending in the first quarter. The community that we have in the market has responded very well with that regard. It is Sun City Center, which interestingly is not that far from the Tampa area, which is not -- is not faring quite as well. But in any market where we have seen an uptick in home resales, we have seen the corresponding entry fee sales pick up.

Okay. Thank you, guys, very much.

The next question is from Adam Feinstein of Barclays Capital.

Okay, thank you. Good morning, everyone. Maybe just to start here. As you think about pricing growth, we look at the same store number and we look at the consolidated number. Which one is more indicative of your real pricing? I guess there is a big difference between the two. So just trying to reconcile that.

Well, obviously there is a significant impact from the ancillary services. So you need to focus on that with or without, depending on what you are after. The same store results will give you a better sense of core pricing growth. We do have a meaningful amount of expansion activity going on. So as we open new skilled nursing units, for example, that will tend to impact the overall number a bit more. And as we go into '09, you are going to see a bit more of that as well.

Okay.

And actually I believe the two rate growth numbers are virtually the same. Just want to be sure we are looking at it with or without ancillary services.

Sure, sure, absolutely. And -- yes, and you gave us the numbers earlier in your prepared comments about the excluding ancillary services. I am sorry, can you -- can you just go back through those just to make sure I heard those correctly?

Sure, just a second. Let me get to the right page here. Without ancillary services, this is single quarter over single quarter -- it is 2.6% -- 2.7%.

Okay, great. And I guess just curious to get your thoughts in terms of -- as you have new residents moving in, how cognizant are the residents in terms of your balance sheet. Since you are a public Company, do they look over your numbers and ask you questions about your liquidity. I know some -- you guys are clearly doing a lot better than other operators in the industry, but -- but just curious in terms of as your stock price moves around, are the residents -- are the residents factoring that in? Do you get a lot of questions about that? I am just curious if that weighs -- .

We do both in terms of residents, as well as prospects. And I think our folks do a very good job of focusing on what the Company, the strong Company fundamentals still are, but there is, quite frankly, as some of this overhang might be lifted here a little bit, we expect to see a positive effect from it. But it is something that people do look at.

Sure. And then you mentioned earlier you felt okay about entrance fees going into 2009. And certainly that was the case in the fourth quarter. But just -- I am a little bit surprised, just -- you would think that just in the current environment that -- that senior living operators would be forced to maybe cut entrance fees to keep occupancy rates up. Just curious in terms of if you could just provide more commentary around -- around your comments and just -- and as you guys think about managing that, how -- how you plan to maintain those.

Well, you got to take several things into account. Particularly you got to take into account the MBA assets that we have been working on for some time and managed to get our the life-care licensors about midyear last year and have gone through major capital improvement and renovation elements and repositioning of those assets. And that has started to gain traction, so that is a factor of it. A community that we, ARC had acquired in Birmingham that was and also a very significant turnaround issue and stuff and had to go through a process there and that community filled up last year and is staying full. So you take each one of those in those individual markets and the overall effect of that, and also that's -- that's an experience that -- that we've in a product line that we have a group of people here that have worked anywhere from 25 to 30 years with and I think are fairly skilled in terms of dealing with a challenging environment. There is no question that the environment does put additional challenge on the entry fee component and I think we are working with it well.

Great. Okay. And then just -- my final question here. Occupancy rates for the industry actually weren't as bad as what the market thought into the fourth quarter. Just curious to get your thoughts. Were you guys anticipating things to be worse? And I am not just talking about for your portfolio, just for the industry in general. Obviously occupancy rates are down, but I think the perception was they were going to be down a lot more. Just curious whether you guys were anticipating the industry environment to be even more difficult into the fourth quarter than it was.

We looked back over the last two years, there were a lot of people who wanted to forecast very significant drops and the facts remain that the change in occupancy was relatively small. There is no question that the environment and the world changed a bit as we went into the fourth quarter of last year, and -- and that will give -- that will increase the challenge a little bit, but, again, I think that the field will demonstrate that the underlying fundamentals and need factors and what's gaining there, as well as the lack of new supply factors coming on, that it is going to hold better than those who want to suggest that it will slide off the slippery slope.

Okay. Great. Thank you for the commentary.

The next question is from Rob Mains of Morgan Keegan.

Talk a little bit about given what -- you talk about some of the labor market issues, where you are seeing employee turnover and I am particularly thinking of the clinical staff who might be in other times hard to retain.

Well, our folks did an incredible job last year of improving the retention rates across almost all of our job classifications and groups and particularly increased the retention rate to a very high level within the therapy area. We made some improvement in the nursing segment, though the nursing probably is a little bit more challenging, but we continue to make progress in that regard. Again, I would probably credit our folks and what the focus and the efforts they put on what it takes to properly attract and retain people. Over -- over the longer term, those are areas that we will have to remain very diligent and prove that we are the employer of choice for those -- for those skilled workers. And right now in this environment, we are -- we are seeing the opportunity to upgrade in all kinds of positions. And that is -- that's at least a positive side of what is otherwise a challenging environment.

So when you are seeing some of the improvement in labor that you are discussing, I assume that lower turnover is one of the factors that -- that contributes to that?

It is, it is one.

Okay. Quick question on the CCRCs, you had an increase in units during the quarter. Is that new SNF units that were opened?

As we have added skilled nursing to some campuses, they convert from one segment to the other segment.

Okay. And then the development CapEx this year, can you give us a sense just in terms of modeling out what to expect for next year. If there is any significant new buildings or new expansions that will be coming online in 2009?

The net spending for -- the gross spending for '09, sorry, is about $110 million. The -- a big part of that relates to completing the entry fee CCRC at the Villages in Florida, but, again, virtually all of that is going to be financed either through construction financing or reimbursements from the REITS.

It is about, what, 700 and some odd units that will open up during the year. Some will take up -- jump off the ground rather quickly as they have as far as the small memory care expansions and those things, which we continue to have incredible success with. The others have a little bit more ramp-up. As you look at the total year of '09, there is not a lot of impact to '09. '10 would get the bigger impact of the maturation of those.

The types of units that would be added, it sounds like those will be sprinkled between AL and CCRC.

Well, we have the one project that is the finish up of the development, which is continues to go incredibly well. And then most of the other expansions are -- are usually memory care, select nursing, and little bit of AL, and, again, those are the higher demand, higher revenue, and economic margin elements of those are very strong.

Okay. Got it. Thank you.

The next question is a follow-up question from Mark Biffert.

Hi, Bill, I was wondering if you could provide a little color what you are seeing on pricing in terms of from peak to current market declines that you may have seen across each of the property types. And if you could maybe talk a little about what type of return opportunities or hurdle rate would you have to see to get more interested in acquisitions given the continued support from the GSEs.

Well, there's not enough transaction activity to really suggest that the cap rate has moved from X to Y across any of these. And it is going to be on an individual basis and we think that the -- the bigger opportunities are going to come a little further down the line actually. And we will be -- we will be focused on making sure we get ourselves in position to focus on those.

So what are you seeing from your -- obviously, people have talked about Sunrise and given that they have reported this morning mentioned potential bankruptcy, but outside of that, what have you seen in terms of bids that maybe people are putting on assets or kind of talk about what you are seeing in terms of the bidding process.

I haven't followed much of that. I have been very, very focused internally here, so I wouldn't say that I have studied enough of that to really offer much comment.

Okay. Thanks.

At this time, there are no further questions. I would now like to return the call back over to Mr. Roadman for any closing remarks.

Thank you, Nicole. With that we would like to close the call. Thank you for your participation. We will be around all day for any follow-up questions. Again, we will be filing the K sometime later this morning. So thank you for your participation.

Thank you. This concludes today's Brookdale Senior Living fourth quarter 2008 earnings conference call. You may now disconnect.