Brookdale Senior Living Inc (BKD) 2009 Q4 法說會逐字稿

Good morning and welcome to the Brookdale fourth-quarter earnings conference call. I will now hand the conference over to Mr. Ross Roadman.

Thank you, Christy, and good morning, everyone. I would like to welcome you all to the fourth-quarter and full-year 2009 earnings call for Brookdale Senior Living. Joining us today are Bill Sheriff, our Chief Executive Officer, and Mark Ohlendorf, our CoPresident and Chief Financial Officer. Also present is Andy Smith, our Executive Vice President and General Counsel.

Before I turn the call over to Bill, this call is being recorded. A replay will be available through March 5 and the details on how to access that replay are in the earnings release. 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 results to differ materially from Brookdale Senior Living's expectations are detailed in the earnings release we issued yesterday 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.

And now I would like to turn the call over to Bill. Bill.

Thank you for joining us today. On today's call, we will discuss the results and accomplishments of 2009 in the fourth quarter as well as an overview of our sense of 2010.

Looking back over 2009, we are very pleased with the accomplishments of the year. We increased CFFO, our primary measure -- performance measurement, 21% from $1.52 per share in 2008 to $1.84 in 2009. And we reached the $2 billion revenue mark and the $200 million CFFO mark for the first time.

At the beginning of 2009, we had expressed our concerns about the economy and pressure on occupancy. But we also stated that we expected rate growth to remain positive in a range of 2 to 3%.

Overall, despite the environment, our occupancy has generally held. In fact, over the last three years, occupancy has stayed within a range of 2 to 3 percentage points.

Occupancy hit a low in the second quarter of 88.5. In May, it started to trim up. During the second half of the year we executed our sales plan well, we continued to use selective incentives at about the same level throughout the year to encourage the move-in decisions. And by year end, our occupancy -- excluding expansions and acquisitions -- had increased to 89.4%.

At the same time, we stayed in that 2 to 3% same-store per unit revenue growth in the senior housing revenue throughout the year. Certainly better than other state sectors.

Also at the beginning of the year, we said we had strong expectations about our cost disciplines and about the continued roll-out of ancillary services. A big part of the story in 2009 was the extraordinary response of our organization in bringing greater efficiency to our cost structure. (technical difficulties).

In fact, over the last 12 months the same-store senior housing calls were held to an increase of 5/10 of 1%, percent while revenue per unit grew by almost 3%. And ancillary services had a very good year, with revenue growing by 40% and operating income by over 60%, resulting from the maturation of our therapy clinics and the continued roll-out of Home Health.

Importantly as well we made good strides in strengthening the balance sheet. We prudently made the decisions to access the capital markets in June and paid off the cash borrowings on our credit line to eliminate the nearest term debt maturity, as well as begin the process of the leveraging with the goal of getting our leverage down to six times adjusted EBITDA.

We just announced a new line of credit that removes many of the restrictions of the existing line, has greater capacity and has a 3.5 year term. The debt markets remain active and we are set to close on the financing of five of the acquired assets and continue to actively work on our 2011, 2012 debt maturities.

My final two points on the year are, first, we demonstrated progress in our expansion program that produced almost 1,200 new units with excellent initial results. And second, we reentered the acquisition arena with two accretive transactions.

Before turning the call over to Mark to discuss the fourth-quarter detail, let me say that the fourth quarter continued our pattern of producing good results in spite of the protracted deep recession for the important consumer measures -- housing, consumer confidence and unemployment -- remained weak. Recurring CFFO was $0.42 per share versus prior year's $0.35. Our occupancy increased 20 basis points during the period to 89.4% and our Assisted Living segment reaching its highest occupancy since the legacy companies were combined.

Our ancillary services continued to excel and ancillary operating income grew 64% during the fourth quarter versus the fourth quarter of 2008.

We opened our entry fee CCRC in the Villages at Florida during the quarter and it is matching the expectations that you would have in a normal market. If you remember, we created the CCRC in this age-restricted town of 60,000 residents by adding 240 independent living units and [72] skilled nursing beds to an existing 48 units assisted living memory care community.

Now 60,000 of 55 plus with their income profile is equivalent to what you would find in a city of approximately 2,000,000 people. This is the only CCRC [or] retirement center within the Villages. 90 independent living entry fee units were moved into by year end. An additional 60 people with their 10% deposits were in the process of scheduling their movie ends. And additional sales have good momentum.

The 72 units skilled nursing opened mid-to-late November and hit 100% occupancy in 45 days. Two weeks ago, we held a four-day grand opening and had 11,000 people visit the community. I have to say that that even exceeded our expectations.

The original assisted living and memory care units remain full and with the skilled units filled. And I have a feeling the community actually turned in a positive operating contribution in January, which also exceeded our own expectations.

During the fourth quarter, we made our first acquisition over (technical difficulties). We have already described the attractive nature of the 18 asset Sunrise portfolio and its fit with our business. We completed the transaction on November 18 and the transition has gone very smoothly.

While too early to report on matured financials, we have already affected lower cost in areas such as insurance, benefits and supply procurement. We have also initiated ancillary services in nine of these communities with six more scheduled by the beginning of the second quarter.

We remain very excited about the communities and are confident in the team's ability to expand margins and get a midteens return.

I will now turn the call over to Mark.

Thanks. Bill. Before I begin, I want to remind everyone we have included our quarterly supplemental information package on the Investor Relations section of our website as well as it will be part of the 8K filing today containing the earnings release.

Let me start by looking at some highlights of our financial performance for the quarter. As Bill said, we had a good fourth quarter and we reported cash from facility operations, or CFFO, of $45.9 million or $0.39 a share. That did include $3.6 million or $0.03 per share of outside expenses related to specific transaction activities in the quarter.

Excluding the transaction costs, the quarter's CFFO was $0.42. There were also $2.4 million or $0.02 per share of startup losses related to the expansions during the quarter. The $3.6 million of transaction-related calls relate to expenses of the specific transactions we closed in the quarter. Previous to an accounting rule change, most of these costs would've been eligible to be capitalized. Now all costs are expensed at the same time they are incurred.

During the fourth quarter of 2008, we reported $32.4 million or $0.32 per share of CFFO. But that included $3.5 million or $0.03 per share of hurricane costs and merger and integration costs.

Comparing this quarter's $0.42 to the adjusted $0.35 for 2008, we produced a 20% increase in CFFO per share. Remember that we have excluded from CFFO the first generation entry fees from the Villages. These funds are, by state regulation, escrowed until we hit 70% occupancy at which time the construction loan is paid down.

For the fourth quarter, the $15 million of first generation entry fees we collected are in the GAAP cash flow statement, but we have excluded them from our non-GAAP numbers and the supplemental data sheets pertaining to entry fees. Our average occupancy increased 20 basis points from the third quarter, excluding the effects of newly opened expansions and acquisitions. Our AL segment was particularly strong, moving up 60 basis points for a quarterly occupancy of 91.3%.

Both retirement centers and CCRCs rallied over the course of the quarter to end at nearly the same point they entered the quarter, excluding expansions, though their averages were down slightly. We continue to use targeted incentives at a similar levels as the last several quarters. Our senior housing rate growth was around 2%.

Costs on the senior housing side were again fairly muted. Taking out the effect of expansions and acquisitions, unit cost growth was 1.5%. We continue to see savings over the prior year related to labor efficiency -- for example, lower over time -- and also continue to experience savings in utilities, supply procurement and insurance costs.

Included in our total expenses are $2.4 million of startup losses associated with our newly opened expansions. We have opened several large expansions, particularly a couple of skilled nursing centers in the Village's independent living operations.

The 2009 projects are larger than the prior year's projects and are, therefore, incurring greater startup costs. These costs show up in operating, interest, and lease expenses. We expect these costs to decline progressively through 2010.

Our Q4 '09 over Q4 '08 same community results were positive. Revenue increased 3.1% as a result of an average revenue per unit increase of 3.8%, which was offset by a decline in occupancy of 70 basis points. The senior housing rate grew by 1.9% and ancillary services added 1.9% to the revenue per unit growth metric.

Expenses grew at 1.7%, resulting in the same community NOI growth of 5.9%. Excluding ancillary costs, senior housing expenses grew by 40 basis points. The same-store margin increased to 34.6% for Q4 09 up from 33.6% for Q4 '08, a 1% improvement.

Our ancillary services programs continue to perform well. The platform now serves almost 36,000 units for therapy services and 20,000 units for our Home Health.

Overall in Q4, $229 per unit per month of operating income across all units served by our ancillary services dropped to the bottom line versus $146 per unit per month in Q4 '08. As a point of reference, for the legacy ARC portfolio, the average monthly operating income for occupied unit reached $295 in the fourth quarter though that portfolio has a greater proportion of skilled units than the total portfolio.

As we serve new units in communities without skilled nursing, our overall target average per unit monthly contribution remains $150. In fact, we think there is some upside to that number.

Excluding the impact of SNF units, all units served produced $147 average monthly ancillary services NOI per occupied unit in the fourth quarter. G&A expenses, excluding non-cash comp expenses and integration and transaction costs, was approximately $25.8 million or $2.4 million higher than Q4 '08. Our quarterly cash G&A costs continue to run in a $25 million to $27 million run rate range, excluding transaction expenses.

Turning to the balance sheet, with positive cash flow, we again strengthened our financial position. As we announced last night, we entered into a new $100 million revolving credit agreement with GE Capital. It replaces the $75 million line of credit that was maturing in August of this year.

The GE line has the option to be increased by another $20 million. It matures at the end of June 2013.

Importantly, the new line removes many of the corporate restrictions of the old line. We are allowed to use the line for acquisitions working capital, capital expenditures and for other general corporate purposes. We have also replaced letters of credit under the old line with the new bank letter of credit facility.

We ended the quarter with $66 million of unrestricted cash and no borrowings on the line.

At the end of the fourth quarter, our leverage was 6.7 times net debt to adjusted EBITDA, calculated by using the year-to-date adjusted EBITDA number of $375 million, including the historical EBITDA from our acquisitions. And we continue to work toward prudently lowering this leverage further. We have indicated that our ultimate leverage target is approximately six times adjusted EBITDA.

As it relates to our mortgage debt, as we have discussed before, other than normal amortization we now have no mortgage debt maturities until 2011 after the impact of contractual extension options. We have a commitment for approximately $45 million of permanent mortgage financing for five of the communities we acquired from Sunrise, which we expect to close in the next few days. In addition, we are actively working towards near-term refinancing of our 2011 maturities.

In the supplement, we have included information about our debt maturity schedule and fixed charge coverage.

Finally looking at our CapEx, you can see that the higher level of spending we have been discussing came through in Q4 with maintenance CapEx increasing to around $7.5 million and EBITDA enhancing, where we have increased the number of projects to reposition and enhance current communities increase to around $8 million.

I will now turn the call back over to Bill for comments about 2010.

Looking into 2010, the greatest uncertainty remains the impact of the protracted deep recession with a bit more pressure on rate versus occupancy. While the environment has not improved much in areas relevant to our business, we believe that we will experience a small increase in occupancy during the year.

This is particularly true for the more needs-based products and approximately 60% of our units are assisted living, Alzheimer's and skilled nursing. And of the approximately 40% that are IL, close to 50% are currently licensed for AL.

And of course our ancillary services assist in addressing the needs of our residents in all settings. During 2009 across all of our segments we saw Alzheimer's occupancy go up 200 basis points, assisted living up almost 200 basis points, and skilled nursing up almost 100 basis points. These segments will continue to show gains we believe in 2010.

Independent living has not yet seen the environment become favorable for material improvement. Thus, as to revenue per unit, we are more cautious.

While occupancy has started to move in the right direction and we should see some continued improvement in 2010, we believe we are a distance away from beginning to see real sustainable pricing power. That said, we will continue to achieve some positive growth in 2010. We increased our freestanding assisted living rates in the 2 to 3% range for current residents on January 1 and expect close to that same range for other product lines as well, which are spread throughout the year.

However, the inability to raise street rates more than the existing residents rate for several years now and with the continued use of [most] incentives, we are seeing some negative mark to market dynamics in certain markets. Therefore, we expect senior housing rate growth to be in the 2-ish range.

We expect the ancillary contribution to continue to show good growth in 2010 though probably at a slower rate than 2009, because the therapy business has started to reach maturation. In the aggregate, we expect total revenue per unit growth per unit growth in the range of 3% plus or minus. In addition, we will see some revenue growth from the added capacity from expansions and acquisitions.

On the expense side, we expect unit cost growth to stay low. Controllable community expenses account for approximately 80% of our cost structure include items like labor, food, travel, training, and supplies. For 2009, we saw an average wage rate inflation of 1.3% and expect that 2010 should be similar.

The cost improvement we achieved in our controllable cost in 2009 is sustainable because it resulted from efficiencies obtained through new systems, improved operating methods, and hard work. Adding all -- in all the other costs such as utilities, real estate taxes and insurance, we expect overall expense growth to be about 2% to maybe 2.5.

And our fundamental goal is to maintain a positive spread between the level of revenue growth and that the expense growth. Without compromising our quality of care standards, we will continue to manage expenses toward that goal.

Looking at other elements of our cash flow, 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. Routine CapEx which impacts the FFO is expected to be $30-ish million for the year. We also expect to spend about $50 million to $60 million on other major projects.

Turning to entry fee cash flow, given the environment, we had good results in Q4 and we saw improvements going out of the year in 2010. Taking into account the environment we do expect results to be better than 2009.

While entry fee sales have been down and refunds have continued at their historical place as a result, at the end of 2009, we had an inventory of 548 entry fee IL units to sell with an estimated gross sales value of nearly $93 million against which there are only $10 million of associated refunds of obligations left. This unsold inventory represents an $83 million cash flow opportunity that would be added to the natural attrition resale of the entry fees.

Any upward movement in the housing market could bring a good upside to our numbers. While we have not given specific CFFO guidance in some time, we believe that the realm of uncertainty has narrowed in 2010 and while we are cautious in borrowing a double dip, we believe there is enough upside to offset the downside and give us reasonable visibility as to where we think all of the drivers of cash flow will take us.

We expect the CFFO will be in the range of $2.00 to $2.10 for the year on revenues in the neighborhood of $2.2 billion. While not giving quarterly guidance, we do expect the profile of the quarterly progression to be a little different than last year -- again, with the number of new buildings opening, that opened in the latter part of the year and the bad weather affecting the first quarter of this year as compared to last year.

Looking beyond 2010, we remain very excited about the future of the Company. The growth prospects are excellent. The organic growth characteristics of the business have proven themselves to hold up well, even in most difficult times and will be positively impacted by an improving environment in the face of what could be a very strange supply across all of our segments.

The case for consolidation is compelling. We believe we have come out of these difficult times with the best platform with which to operate a national business and expect to be active in completing accretive transactions over the longer term.

Our ancillary services business has several years of growth with the current array of services. And we are actively looking to expand our services into markets where we do not currently offer them.

Our goal in 2010 is to capitalize on the position we have worked so hard to obtain -- to be the provider of choice for residents; employer of choice for associates; acquirer of choice for sellers; and business partner of choice for those who wish to be active in the senior living field.

We will now turn the call back to the operator to begin the question-and-answer session. Operator?

(Operator Instructions). Brian Sekino with Barclays Capital.

Good morning. Just a couple of quick housekeeping here. As it relates to the CapEx of $30 million is that -- does that include CapEx for the Sunrise facilities?

Yes. That's the entire portfolio.

And then on your supplemental, I see that there was a bit of reclassification of centers -- retirement centers, the assisted living. Is that -- as I look at the Q3 supplementals versus the Q4, I guess the number of communities is shifting.

That's right.

Is there just -- can you give us a bit of color on the change?

It is largely administrative. As Bill mentioned, a large number of our independent living units are actually licensed as assisted living. So when you classify a particular community that operates as independent living but is licensed as assisted living, there is a little bit of judgment involved in where you classify that property. And I think during the quarter we reclassified perhaps half a dozen properties.

They are the same assets. They are simply being moved from one segment to the other.

Got it, got it. And then I appreciate your comments about the end of quarter occupancy.

Just wanted to know, as you think about the 88.9 consolidated occupancy number, does that -- how are the Sunrise and those three facilities that you purchased really impacting that? Is that just like having a very small impact because they were acquired at the end of the quarter?

They are pretty well in line with that. It really doesn't have much of an effect there.

Doesn't matter. Okay. And that 89.4 includes it. Okay.

And then on your expansions, you mentioned there was some SNF expansions during the quarter. Are those new openings or were they just adding a wing onto a facility or just wanted to get a bit of color there?

Well, they are typically adding a SNF building onto our campus. And we had the Villages open in the fourth quarter and I believe we had three SNF expansions open in the third quarter.

Late third quarter. Partly until full licensure part of it was in the fourth quarter.

Part of it in the fourth quarter. Okay. And as you think about your ability to [that] going forward with some of your existing facilities, do you think you could give us a bit of color on the capacity that you have to do that in 2010?

Well, as we have communicated we've opened up close to 1,200 units this past year. A fair portion of those were skilled nursing, and as we said on our last call we will -- it dropped through to mostly a close. Most of the expansion starts that we have started a year or so ago and that this year we would be looking to start some new expansions, but not expecting any of those to open within this year.

Okay. And then let's just -- last question here, appreciate your guidance. You know you mentioned that 2 to 2.5% overall expense growth. As you think about the -- you mentioned 1.3 in the salaries going forward and do you expect for that remaining 20% where you have like some utility costs and food costs is that going to be similar to the range of the wage growth as well?

Well, they vary a bit but [ratable] state taxes are going to be a bit more. Counties and cities are definitely looking to gain, increase their revenues. And there are some increases in state unemployment taxes that have been pretty significant here and the others are going to be pretty well in line with what they were last year.

Great. Thanks for taking my questions.

Ryan Daniels with William Blair.

Good morning. Just a couple of quick follow-ups.

First on the expansion, I realized that it is not going to move the needle much this year in regards to units, but can you just outline maybe your goals through the year? How many you are looking to open and where the focus will be? I assume that is kind of dropping in maybe Alzheimer's into existing communities and maybe over the next one to two years how many total units you guys anticipate opening up?

I don't think we are prepared at this time to give an exact timing because of all of the design approval processes and everything else that are fairly hard to predict until we get that back ramp back up a bit in terms of the pipeline. Everything is pretty well opened and before the end of the year, except for the one component that is still waiting licensure final review that will open here in the first quarter.

We will have some impact, startup lost impacts and stuff in this first quarter and may in fact have a little effect in the second quarter. But then we will start adding some decent contributions as you start into the third and fourth quarter.

What about completely new units, though? As you think of stepping up that program again over the next few years, is that something that you want to maybe look to add 1,000 units a year to your existing base going forward? Or have you not gone into that level of detail yet internally?

As far as totally new developments that's not --.

No. New units to existing (multiple speakers).

Yes, that's -- we would expect to get back to where we -- but it is going to be a lag time because certainly going into this challenged environment we stop adding new starts. Now it takes a while to get that ramp back up.

But we have always experienced extraordinary high unlevered returns off of that expansion activity, as well as its synergistic effect on that community, as well as the whole market with which they are in where we have a concentration of communities. So we will still be putting a priority for that activity on return.

Thanks for the color. And then what about the M&A front? Obviously, you had a pretty successful end to the year there.

As we look at the 2010 is it going to be kind of a similar mix of Home Health and ancillary acquisitions versus senior living? Are you looking maybe a little bit more towards the Home Health side? I know you've talked about getting in some of the certificate of need states, it might be bigger deals. Any color there of how you envision that shaping up?

Yes. On the Home Health, most all of our acquisitions to date have been where we basically are providing -- acquiring the provider number and not much volume business activity with it.

We are still going to continue that activity. But as you said in the CON states we most likely are going to buy maybe a larger Home Health which -- company -- which we may intend to maintain the business within that market. On the senior living side of it we do expect over time there will be some opportunities, but I think it will be very hard to predict the timing of that. There's still maybe a little uptick in activity out there, but in terms of our view of being very disciplined to make sure that we look at those opportunities [attributed] to us, fit our long-term strategies so we will be very disciplined in what we look at and what we will (multiple speakers).

Sure. What are you -- can you remind us what you think the ultimate potential -- if we are looking at Brookdale today at roughly 54,000 units. I know therapy's about 36 and Home Health is around 20.

I mean, how penetrated do you eventually see those two going kind of longer term as we look out the next two, three, four years? I mean 80% of all units served by those two or is that a little too aggressive?

We might be able to approach that, but that is going to take some time. The primary factor in that and our growth in next year, of course, the therapy still has some maturations of the final rollouts here, but the Home Health is going to be the bigger component of that and we will be seeking to get the Home Health up to about that same level of concentration -- of penetration that the therapy is at.

And then maybe two real quick ones. Just on the GE line, can you provide a little more color on the rates? I don't know if that is an 8K filing but I didn't see it anywhere. Just what we're looking at there?

Yes, it is actually a sliding range that is [450 to 550] over LIBOR.

Okay and then the last, just any more color on entrance fees? It sounds like, obviously, a pretty good quarter. I think your units close was up about 20% or 23% year over year. It sounds like you entered the year with a pretty good line. Any more color on how big of a contributor you guys think that could be to (technical difficulties) CFFO?

Is it going to be up incrementally? Do you think it could be a big increase from the level this year? Any color there would be helpful for modeling. Thanks.

It will go directly in relationship to how we see home sale -- home resale activity improving. And where we have seen home sale activity improving, we have definitely seen the sales in that market improve.

We have a long ways to go to get back to what was -- what you would consider static occupancy turnover contribution which is in the double what the last years are. But we are a ways off from seeing that.

But we do see, in that area, definite signs of improvement and -- but I think it is pretty hard to predict. But we should see a decent increase this year but not a dramatic increase.

That's helpful. Thanks.

Sloan Bohlen with Goldman Sachs.

Good morning. Got most of them but just wanted to touch a little bit more on the C business. And the growth you had in there too I think it was $226 per unit per month. What are your expectations for growth on those fees going forward, kind of an addition to what you can do in terms of expanding on the portfolio?

Talking about the ancillary incomes?

That's right.

It isn't -- again, we believe that the 150 mark on the non -- like I say ARCs is the right benchmark that we think there is some upside act -- potential to that. But that we think that would be the right general planning benchmark.

And then just to get a sense of the lag of what units you added in the fourth quarter, do we see a good amount of that impact the fourth-quarter results or should we expect that to flow more into 2010? On the Home Health side?

That -- on the Home Health site?

Yes.

There is not a lot of negative impact on the Home Health acquisitions. Again, there is not much business in those initially and our startups have been very efficient and really turning to positive contribution relatively soon with not a lot of operating cost. It is pretty well embedded in the base of what growth line activity we have had.

So the things that would have negatively impacted the fourth quarter were some of the acquisition transition costs of -- on the acquisitions as well as the new startup.

Is it fair to think that those almost offset what the positive impacts would be to the startup costs unless you rolloff presumably just within the quarter?

They're probably -- again we are opening some larger expansion operations now. So they will certainly taper down as we go through 2010. We will continue to see some losses, though, in the first couple of quarters.

That's it for me. Thanks.

Frank Morgan with RBC Capital Markets.

Good morning. I know you are not giving quarterly guidance here, but just conceptually it sounds like with these startup losses on those expansions that maybe we are somewhere at slightly above what the run rate was in the fourth quarter for CFFO. And then it sort of backend loads and builds up over the course of the year to get into that $2.00 $2.10 range. Is that the right way to think about this?

While we are not providing quarterly guidance that sounds reasonable.

Just wanted to make sure. Secondly on the -- if you could remind us on your breakout of Medicare business lines in terms of revenue contribution from Medicare versus all of the other private pay sources and then maybe some color where you break out between how much of that is derived from the Home Healthcare versus the therapy side?

Sure. The non-private pay part of our revenue is 17%. That includes a small amount of Medicaid and private insurance. It is primarily Medicare.

The Medicare pieces are the par day skilled nursing benefit, outpatient therapy and home care which -- we don't provide public information about the specific amounts, but they are reasonably proportional across that 17%.

Thank you. And on the subject, any updated thoughts in terms of your view and how you are positioned with these -- I know there are a couple of things up in the air between the physician fee fix, the therapy cap acceptance process, any color, any thoughts you could give us on that front?

The therapy cap extensions was proportional. All the different pieces of legislation in there, every version of it. And I think every -- you know. the world anticipated that that would be addressed through some adoption of that, I guess. And it was then into the Jobs Bill and then it got stripped from the Jobs Bill, but we are told by center staffs and other things that that is expected to be addressed in the next few weeks.

I think it is a reasonable expectation that it will get addressed. But if it doesn't, it will have some impact on us.

Got you. Also I think you mentioned that you were saying a little bit of a pickup in certain markets. Where housing activity had picked up, you had seen that reflected in your CCR activity.

Could you share any of those specific markets where you are, in fact, seeing that?

Well, it's -- we've seen it in -- actually in this last quarter we have seen an improvement in just about each of our markets.

So it's not any one particular. It is not South Florida versus --?

Some are a little stronger than others, but we have actually seen it in virtually all of the markets that we are active in right now.

One final and I will hop off and I can't remember if you have disclosed this one or not. But do you have your end of period occupancies, the December 31 occupancy numbers by segment?

We do not report that number anymore. We modified the occupancy reporting to include average unit occupancy at the beginning of 2009. So that's the information you will see in the public filings.

Maybe just from a qualitative standpoint. Is it fair to say that the improvement that you saw from third to fourth that that momentum kind of carried through? Do you feel like you carried that momentum through with you as you went into the start of the new year in the first quarter?

Well, we think the basic underlying drivers or influence factors there are staying about the same. The assisted living, the memory care and the skilled nursing components being still the stronger elements. And so I think we will still see independent living to be able to come close to maintaining its own, but it will be that which will have the most pressure on it.

Thank you very much.

Kevin Fischbeck with Bank of America/Merrill Lynch.

Great, thank you. I guess I wanted to go back, Bill, to your comments about having a (inaudible) visibility in things leading to you guys providing guidance again for the first time in a while. You mentioned that in there that there were some positives that you felt could offset the negatives. I mean could you give a little more color about what things you are thinking about as far as central downside versus areas where you think there might be potential upside to the range?

Well, they are certainly going to be -- continue to be pressure on rate and pressure on rate and occupancy on the independent living piece of it. Though certainly, as we have basically described here we have some degree of flexibility within that in terms of -- and certainly the supporting services that help us in that area.

On the upside, I think certainly there's a potential for outperformance on the expansions. Also think that the -- if in fact we continue to see home resales gain and maintain just a modest amount of strength that we will see some, we have some potential for some upside on the entry fee component.

I think on the cost side, we feel fairly good that the cost side of the equation we can keep contained quite well. So there's --.

All right. I guess that all makes sense. As far as I guess going back to the startup losses, I'm not sure if you answered this or not, but does any of the EBITDA enhancing CapEx going to contribute startup losses in 2010?

It should not, no.

Okay so those will show up in 2011 when you start opening up the new units?

Correct.

And let's see. Can you talk a little bit about the pricing by product? How did you think about -- I mean you gave some good data there about a little bit better on the AL versus the IL. Are you assuming any mix shift in the weighted pricing that you gave of about 2%?

Well, obviously, we would be assuming modestly stronger pricing on the need-based side of things. Where the occupancy performance is anticipated to be better as it has been, and a little softer on the independent living side.

And you mentioned that it's going to be a net impact from things like incentive fees. Is the view though that that is consistent with what you did in 2009 or do you expect that to be a little bit more of a headwind in 2010?

No. I think on the incentive side we are anticipating that will remain at current levels.

And I guess maybe the last question here on the ancillary services side, you know, I'm backing into a revenue number for the year, around call it $220 million. Is that the kind of the right ballpark there?

You know we don't have those numbers right in front of us. It's probably maybe just a little bit high, but it is probably fairly close.

Okay. But --.

You are a little high.

A little high. Okay. Actually I was just thinking the income number assuming -- (multiple speakers).

I'm sorry, Kevin. Were you talking about '09 or '10?

'09.

No.

I was thinking the income number and it seemed like a 35% type margin.

You are a little high at that number.

All right so I guess that's a decent place to start. How does it break out between -- just kind of ballpark between the therapy and the Home Health. When you talk about penetrating units is it similar revenue for penetrated unit so we should just do that breakout between Home Health therapy or is one a higher revenue per occupied unit?

Again, that number includes the therapy component of the Part A service, the outpatient therapy and Home Health. And we don't publicly disclose that distribution. But it is a reasonably -- it is a reasonably writable distribution across those three.

Great. Thanks.

Jerry Doctrow with Stifel Nicolaus.

Good morning. First of all, nice quarter. I think it has been a difficult environment and definitely impressed with the way you guys have done.

Just a couple of things. So the rent looks like it was coming down a little bit because you bought out some of those leases, it looked like. What is the rent number go forward?

You know if you annualize the fourth quarter and apply some modest inflator, I think you are going to be awfully close.

Okay. And just in terms of philosophy there, you know you've increased your own proportion of owned units. Is that something you would still like to do as you go forward or are you happy with where the mix is about now?

Very long term, we would desire to own a little bit larger percent. But as we go through this end market and all the disruption to market structures and where opportunities may emerge or not, you might see some different transactions go different ways there.

But on a longer term basis we will be trying to own more than lease but there will still (multiple speakers) --.

Then do you have any material buyout rights on some of the existing leases or not really?

There's all different -- there's a whole spectrum of different terms across all of those and -- but we will be continuing to very actively look at and work on opportunities for improving the overall economics.

Just a couple of things because a lot of this has been covered. Is there a floor on the LIBOR mark?

There is. I believe it's 2% in the new line.

Let's see -- just on the Villages. My note, this is all first-generation so it's not counting. At some point do they sort of roll over and start being an issue and is that something we should be thinking about for 2010?

We won't see much resale in 2010. You may see one or two units or something possibly, but I wouldn't include any of that. And again the first generation is going through that initial capital structure elements so we intend only to include in CFFO the resale element of the Villages.

So it may start being an issue by like 2011 but it is not going to be that big an issue in (multiple speakers).

It's not going to be -- it is not going to contribute anything to this year.

Then just two other things. I wanted to maybe get a little more color on the Sunrise acquisition, just trying to think about how that impacted the occupancy and sort of average rates and stuff. I mean, you sort of give us the numbers to kind of back into some of that, but I haven't been able to work out that math.

But can you give us just a little color on what that portfolio looks like, relative to what you've -- your existing stuff?

It's going to have a very modest occupancy on those overall numbers. The occupancy is pretty consistent with the balance of our portfolio and its 1,100 units on 53 -- or [$47,000]. They are higher rate communities. We've talked about that, but as a practical matter they don't change the math in a meaningful way.

Then, just last thing. Again, I think you touched on this, but just sort of move in, move out a little bit thinking of the first quarter. I mean I'm -- you know, my sense is clearly you get through this slippage because of the holidays, flu season which I guess maybe you had some in that (inaudible).

So you know in terms of first quarter we should expect some dip in occupancy and then rebuilding or if you can give any more color you could give me about move out, move out, move in so that we are where that is?

As we all know the highest mortality -- morbidity period of the year for seniors is the January period. So you have some effect there and then you start seeing some improvement in that. So it -- you generally have it right, the first quarter is -- can be flat to a little soft and then you would expect some improvement through the other quarters.

And again, my sense was you were -- there's -- is there anything else dramatic in your cost structure whatever, like workers comp resetting or any of that other things that causes fluctuation in the first quarter we should be thinking about? Or is it nothing that is that material?

No, not that impacts the first quarter proper. We are obviously recalibrating our accounting for the various programs when we go across the years. So for example, health insurance cost is a relatively high level of inflation. So we will reflect that. But I don't think that's going to really impact the numbers, quarter to quarter, very substantially.

I'm still bracing myself for the snow removal costs in its first quarter. We have enjoyed some unusual weather.

And that's just not under contract. When it gets this bad you have to pay extra to --.

It's when it happens is when you pay.

Okay, fair enough. Thanks guys.

Rob Mains with Morgan Keegan.

I just want to follow up on a couple of things that have already been asked. Mark, the line that you are replacing, am I correct -- the 3% floor on that was a 600 spread?

I believe it was 600 or 650, yes.

Did I hear you right in your prepared remarks that you said that your Aiello and CCRC occupancy well was down sequentially. It actually moved up a bit during the quarter. Or did I hear you wrong?

Beginning to end of quarter it was relatively flat.

So that implies it was -- it had declined in the third quarter and you kept a level?

I think it implies that it tapered off a little during the middle of the fourth quarter and came back.

Okay, fine. The -- Frank asked about the therapy business and I realize this is a short-lived phenomenon. But some of the nursing home operators have talked about patients concerned about exceeding their caps turning down therapy services. Just anecdotally are you hearing any of that in the field?

In past times when the therapy caps did go off -- and at one point in time, I think it went all the way to April before they corrected it retroactively -- we did observe that behavior. And the fact that people concerned with the very low basis and it is why it's -- it's why it's very likely that it will. Because every single version of every piece of legislation or proposals and thinks dealing with healthcare, healthcare reform have included that extension in it, but yes you have that effect if --.

Then the supplemental on page 2 you have now two years of occupancy rate database on the two different methods for calculating occupancy and therefore backing into rate. Mark, I'd certainly like your thought, what do you think --? I know that for your financial statements, you are using the method at the top that you have in the 10K. In your mind, what is the more accurate way of looking at this?

From a modeling standpoint, the average occupancy information is going to be, I think, much more useful. Particularly when we are in an environment where rate growth is more modest. You know for down in the 2 to 3% range versus 5 to 6 you are going to want to work with a little more precise occupancy measure.

That's helpful. And I guess that is all I have. Thanks a lot.

Thank you.

Gentlemen, please continue with any closing remarks.

Thank you, Christy. With that, we will end the call. We appreciate your interest and support. Management will be around all day to answer any follow-up calls and, with that, we thank you for your participation.

This concludes today's conference call. You may now disconnect.