Brookdale Senior Living Inc (BKD) 2014 Q2 法說會逐字稿

Good morning. My name is Regina and I will be your conference operator today. At this time, I would like to welcome everyone to the Brookdale Senior Living second-quarter earnings conference call. (Operator Instructions)

I would now like to turn the conference over to Mr. Ross Roadman, Senior Vice President of Investor Relations. Sir, you may begin.

Thank you, Regina, and good morning, everyone. I would also like to welcome you all to our second-quarter 2014 earnings call. Joining us today are Andy Smith, our Chief Executive Officer, and Mark Ohlendorf, our President and Chief Financial Officer.

I would like to start by pointing out that all statements today which are not historical facts may be deemed to be forward-looking statements within the meanings 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 yesterday 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.

With that, I would like to turn the call over to Andy Smith. Andy?

Good morning and thank you for being with us. I will begin this morning by talking about the second quarter and then move on to our most recent news, which is the closing of our merger with Emeritus. I will then turn the call over to Mark to discuss our results in more detail, along with some brief comments about our view of the near term.

We are pleased with our second-quarter results. We drove strong revenue performance, primarily through rate growth, and we continued to show disciplined cost control. This generated strong same-store performance, higher margins, and produced adjusted CFFO of $0.71 per share. This was an increase of more than 16% over the second quarter of last year, representing our fourth consecutive quarter of year-over-year double-digit CFFO growth.

We grew revenue by 5.1%, excluding reimbursed and managed community costs. At the same time, our cost growth remained moderate. As a result, our operating margin increased by 40 basis points year-over-year.

Now turning to top-line growth, our year-over-year senior housing rate growth, excluding skilled nursing, was 3.8% for the second quarter. We continue to see the positive impact of the investments we have made in our refurbishment program for our current portfolio. In addition, we are seeing an improvement in the market environment that is supporting Street rates as evidenced by rate growth in our retirement centers of over 4% for the past four quarters.

True to our normal seasonal pattern, we hit the inflection point during the second quarter for move-ins and occupancy. Our sequential average occupancy decrease was a function of the usual decline in occupancy through April. Net move-ins turned positive in May and in June we produced a historical high for Brookdale, both for monthly gross move-ins and for net move-ins.

Based on the June activity, we are estimating that July's average occupancy is approximately 50 basis points higher.

Our entry fee communities produced $25.9 million of gross sales. This is a record for the second quarter. The strength we've seen so far in the entry fee sales continues to confirm our belief that what is needed to support this product is a moderately stable and liquid housing market. This is one reason why we and HCP are so excited about the prospects for our entry fee joint venture.

Our ancillary services business produced strong results, having finally lapped the 2013 reductions in Medicare rates. Ancillary revenue grew by nearly 12% based on an increase in home health census and the maturation of our hospice programs in a number of markets. Our ancillary margins also modestly expanded.

Our organization continues to do an excellent job with managing costs. Our second-quarter same community senior housing operating expenses grew by just 1.7% over the second quarter of last year. Our field and corporate staff demonstrated very strong cost control, even as they were asked to engage in a very detailed and time-consuming integration planning process.

To summarize my thoughts about the second quarter, we feel very good about the performance of Brookdale's business and our people. We produce strong rate and cost control numbers and our entry fee sales were good. Our marketing activities continued to expand the market's awareness of senior living and of Brookdale. And, most importantly, our people have fully embraced the tasks ahead.

Let me now turn to a brief discussion how we are integrating Emeritus and Brookdale into the new Brookdale. First, let me say that the integration process is going well and that the integration experience of both companies is a great asset in this process. This experience is enabling us to get a stabilized combined business as quickly as possible.

There are three basic work streams in our integration process. The first revolves around people and our organizational structure. We have taken a number of steps to fold all of our management associates into a single unified team. We have a realigned field and corporate organization already in place, staffed with both legacy Brookdale and legacy Emeritus associates.

The second work stream involves the functional integration of our business operations. Now that the merger is closed, we can begin to implement our plans to bring the all of our communities together under a single unified approach for sales, marketing, operations, clinical services, and other key operational areas. This will take some time, but as we have said, we believe that over the next several years there is a lot of upside to this plan and nothing we have seen dissuades us from that belief.

The third work stream involves technical systems and infrastructure process integration. We have set priorities and planned waves of system cutovers that reach out to the second quarter of 2015. We have already begun these cutover processes and expect the balance of 2014 to be an intense period of systems and process integration effort.

We feel good about our approach and our progress. We are confident in our game plan, which is to invest in the Emeritus communities, install our systems, our disciplines, and our operating paradigm, and build upon our brand. And we are on track with our underwriting expectations, which get us to $0.50 of accretion in year three.

I want to thank the teams at both Emeritus and Brookdale for all of their hard work and their commitment to make the integration as smooth as possible. As an important aside, with this merger now complete we are focused on closing the HCP transactions as soon as possible with a target of this quarter. We are really excited to finally be putting these two great companies together to build something that we believe will lead to greater value creation for our residents, our associates, and our shareholders.

Now here is Mark to review our financial results in more detail.

As Andy said, we produced solid second-quarter results. Facility operating income grew by 6.4%. Adjusted EBITDA, in turn, increased 10.1%, which then drove a 16.4% increase in CFFO per share, excluding integration, transaction-related, and EMR expenses.

We produced senior housing revenue growth of 4.6% for the second quarter over the second quarter of 2013, driven by rate growth and the impact of an increased number of units from acquisitions made in 2013 and Program Max projects opened during the last year.

During the second quarter, we continued our trend of improving rate growth. Same-community rates grew by 3.4% led by rental independent living rate growth of 4.9%, a second straight quarter of 4%-plus rate growth. Assisted living and dementia care rates were both up around 3%, with skilled nursing rates increasing a little over 1%.

The seven Chartwell Communities we acquired last October and the approximately 100 new net units from Program Max opened in the last year added to the revenue growth as well.

As Andy described, we saw normal turnaround in move-ins this quarter, though the first quarter declined weighed on the second quarter's average. During the quarter we saw an increase in dementia care and entry fee IL occupancies. Our skilled census had its normal decline from Q1 to Q2 of around 130 basis points.

Senior housing expenses increased 3.9%, driving our operating margin up to 34.9%, an increase of 40 basis points from the 34.5% from the second quarter last year. Our ancillary services business produced $65.5 million of revenue, an 11.7% increase from the second quarter of 2013. We saw an increase in home health volumes while lapping the anniversary of sequestration and other rate reductions.

Our hospice operations continue to grow, now with an average census exceeding 350 patients and an annual revenue run rate of $20 million. With expenses up 10.8%, ancillary services operating income grew at 15.1%. Heading into 2015 we expect volume growth from continued expansion and neutral to positive rate increases in all of our ancillary service business lines.

Our independent living entry fee sales rebounded well from the first quarter. Our $25.9 million of gross entry fee sales were a record on 146 sales for the second quarter. The $16.7 million of net entry fee cash flow was $300,000 higher than the second quarter of 2013. Sales activity continues to be good.

Looking at our same-community data for senior housing for the second quarter of 2014 compared to the second quarter of 2013, our senior housing same communities produced a 3.2% increase in revenue due to a 3.4% increase in revenue per unit and a 10 basis point decrease in occupancy. At the same time, expenses increased 1.7% as we continued to effectively manage our labor costs, which increased approximately 2% year-over-year. As a result, same-community operating income grew by 6.4% versus the second quarter of 2013 with our operating margin rising by 110 basis points to 34.3%.

General and administrative expense was $53.8 million for the second quarter of 2014. Included in G&A costs was non-cash stock-based compensation expense of $7.7 million and integration, transaction-related, and EMR rollout costs of $11.9 million. Excluding these items, G&A costs were $34.1 million, down 3.1% from the second quarter of 2013. G&A costs were 4.2% of total revenue under management versus 4.5% for the second quarter of last year.

Our Q2 spending on routine CapEx, which we reflect in our CFFO calculation, was $11.8 million. Our Program Max activity continues to scale up as we completed seven projects already this year, a total of 83 units; with 18 projects under construction, a total of 330 units; and 11 more in active development, a total of 276 units. All together representing almost $160 million of project costs and nearly 700 incremental units. All-in-all the second quarter was a good quarter for Brookdale.

As the merger closed before Emeritus announced its results, let me now cover the second-quarter results for the legacy Emeritus portfolio. Emeritus's results were similar to their first quarter, where occupancy was a stronger story than rate, although some progress occurred on improving the Emeritus portfolio rate growth in the second quarter. The Emeritus portfolio held on to nearly all of the 90 basis point sequential average occupancy gain achieved in the first quarter.

Like the legacy Brookdale portfolio, the Emeritus portfolio saw a robust boost in move-ins as the summer started. On the other hand, expense growth in the Emeritus portfolio with higher than recent history, which we believe was largely related to the inherent distraction around the merger and operations integration process.

In total for the second quarter, Emeritus' revenue increased by 10% over the second quarter of 2013. The increase was driven by a 120 basis point year-over-year increase in average occupancy on flat rates and the addition of the Merrill Gardens communities. Expenses grew proportionately with the operating margin remaining level at 31.6%.

Operating income grew by 10% and was offset by increased community lease expense, keeping the dollar amount of EBITDA level with the second quarter of 2013. Had Emeritus reported as a stand-alone company, their CFFO per share would have been slightly better than the first quarter.

For the Emeritus portfolio's same-community results, revenue grew by 1.6% with occupancy increasing 50 basis points over the second quarter of last year and rates growing by 1%. Expenses grew by 3.8%, mainly reflecting increases in labor-related costs, supplies, and claim reserves. In the Emeritus portfolio, margin decreased, therefore, by 1.5% to 32.7%.

I would like to finish by updating you regarding our current expectations for the combined companies. Based on our integration work to date, we remain confident in the benefits of the merger, our plans to get us there, and the expected $0.50 of accretion to CFFO per share in year three. As noted in our press release, we have established preliminary guidance for 2015 CFFO, the first full year for the combined company, in the range of $2.95 to $3.10 per share excluding integration, transaction-related, and EMR rollout costs, or the impact of possible future acquisitions or dispositions.

These projected 2015 performance levels reflect our updated thinking on both operating fundamentals and the timing and extent of merger synergies. In essence, our 2015 guidance is consistent with our year one underwriting, which we articulated when we announced the merger earlier this year, plus a little incremental growth for moving to the full-year of 2015.

We expect the remainder of 2014 to be a period of transition. Our expectation for the legacy Brookdale portfolio is that it remains substantially on track. We expect the next several months will be transitional in nature given our integration efforts and the anticipated HCP transactions, and we will not be providing guidance for the combined company for the balance of 2014.

We remain confident about attaining our previously discussed accretion expectations for the Emeritus and HCP transactions. We are very excited to have begun the implementation of our integration plans and we continue to see potential upside of being the largest senior living solutions provider.

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

(Operator Instructions) Ryan Daniels, William Blair.

Good morning, thanks for taking my questions. This is Nick Hiller in for Ryan.

How rapidly do you hope to rollout some of your therapy solutions into the ESC markets? Can you tell us how many units are in the markets where you already have a strong presence, such that you see some very easy expansion opportunities?

It's roughly an 18-month rollout plan that has been designed so far. We do have meaningful overlap in terms of our permits. I believe we are somewhere over 70% of the Emeritus units can be served in our current permit structure for outpatient therapy and home health.

Okay, great. Thanks. I know you will breakout the integration costs separately for the CFFO calc, but from a basic level how should we think about that trending over the next three to four quarters?

We have described total transaction and integration costs of $90 million to $100 million. Obviously the transaction costs will largely occur around the closing of the transaction and come through the numbers in the third quarter. The balance of the costs will be incurred through the integration process, year-and-a-half, two-year period certainly frontload to a meaningful extent.

As Andy said, we are very focused on the system cutovers and processes integration, and that's where a meaningful amount of that cost relates.

Okay. And if I can sneak one more in. Could you talk a bit about the re-flagging process and how many of the Brookdale facilities are currently branded under the Brookdale name and how we should think about the Emeritus conversion?

Nick, this is Andy. Our game plan is to re-flag all of the communities, all 1,146 of them today, to re-flag them under the Brookdale name. Now that's going to take a couple of years to do.

We have accelerated that process with respect to the existing Brookdale communities and that will also translate to the existing Emeritus communities in certain of our most important markets, trying to accelerate that through the balance of 2014 and in through all of 2015. So it is a work in process. We're trying to accelerate it, feel good about it.

Great, thank you.

Brian Zimmerman, Goldman Sachs.

Thanks and good morning, guys. Got a question on your 2015 preliminary guidance. Just wondering what is embedded -- if you could give us a bit more information on what's embedded in those assumptions, mainly around occupancy rates and maybe pricing just from a general perspective.

Well, obviously we are articulating that as a somewhat broad range at this point, our preliminary sense of performance for next year. We will certainly go through a lot of details on those drivers, as you described, when we formally communicate the guidance later this year, but it would be reasonable to assume that we are reasoning from current growth rates, both in the Brookdale portfolio and in the Emeritus portfolio.

Now we do intend to begin the investment process pretty quickly on the Emeritus side, although as you might imagine, that will take a period of time to deploy that capital. So you would see some gradual acceleration in growth rates on the Emeritus side, continued growth rates as you have seen on the Brookdale side as we go into the year.

Okay. Then on the occupancy side it looks like independent living had a pretty strong quarter. Assisted living saw a little bit of pressure.

Just wondering if you could give us some information on what you are seeing in terms of occupancy, what's causing some of the pressure you saw in Q2, and how should we be thinking about this going forward I guess in the context that NIC data suggests a bit of a pickup in occupancy rates. So how should we be thinking about this going forward?

Brian, this is Andy. I think the right way to think about this is, first, we consider this to be roughly consistent with our seasonal patterns. We would have expected to reach the inflection point a little earlier, I would have to confess. Maybe a month or so earlier.

And as I indicated in my prepared remarks, what we saw was occupancy sort of drift down through the first quarter, drifted down a little bit further in April, began to turn positive in May, and then we had a really fantastic month in June in terms of both gross and net move-ins on an absolute basis.

But the most important thing to think about, at least the way that I think about it, is what we are trained to do is to hit that right -- that sweet spot between growing rate and also growing occupancy. As compared to the NIC data, you can see that our rate performance was quite a bit superior to what the balance of the industry turned in. So we are, again, trying awfully hard to hit that efficient frontier of getting our rates, which, frankly, over the longer term I think rates are more important than an absolute occupancy statistic.

But we were focusing on rates. The good news is that our occupancy turned, as I just indicated, and we expect, in accordance with historical patterns, we would expect that occupancy to build through the balance of the year.

All right, that makes sense. Thanks a lot, guys.

Raskin Meehan, Barclays.

Thanks, good morning. It's Josh here with Jack. So first question just on the guidance, and I certainly appreciate there's going to be a lot of moving parts here in the second half, but I'm just curious in terms of your expectations what's causing you to sort of pull the guidance all together? Is it just the integration expenses and the moving parts are just sort of too much and probably not too relevant to the future?

Or -- and then I guess the second part of that is as you look into 2015, as you mentioned, Mark, it's a relatively broad range. What gets you from sort of top end or low end to the top end of guidance in 2015?

Sure. Very clearly here the message is we are confident in the thesis of the merger. Once a little bit of the noise clears out of the numbers and we get into 2015, clearly you see the economic benefits of the merger beginning to come through.

2015 is a year that is -- it's just a little bit further out than year one that we previously communicated about when we talked about the merger and the announcement earlier this year. We talked about the first year being largely neutral from a net accretion standpoint and then things growing to $0.50 of accretion by the third year.

So that range reflects the beginning of some synergies, particularly as you get later in the year, and kind of the structural growth rates, as I said, in both the Brookdale and Emeritus portfolios.

It is clearly challenging to provide useful guidance for folks for what is effectively a four-month period, right? Because we are targeting closing the HCP transactions later in the quarter. There is no certainty that that will happen, so that simple item on its own would impact folks' ability to update models and, therefore, provide effective guidance by quite a little bit.

So it's a fairly short period time and we think it's much more useful to focus the discussion around the first year after all the transactions have closed and you can begin to see the fundamental performance come through.

So, Mark, is it more of the swing factor for 2015? It sounds like you have got a little bit of expectation of synergy probably, as you guys would call it, after year one, which starts somewhere in the middle of 2015. Then is the swing factor really more around rate or occupancy on legacy Emeritus, or --? Just a little bit more color as to what really drives that $0.15 range.

It's what you described. Now, obviously we haven't completed our planning process for 2015. We go through a very detailed process of looking at the local markets, executing sales plans, completing location-by-location budgets.

We just closed the Emeritus merger a week ago so obviously we haven't been able to do a lot of that planning activity in that part of the Company yet. So what we are showing in the range are what we believe are kind of a reasonable range of expectations and what will come out of that planning process, which will really occur over the next few months.

Thanks, guys. This is Jack here, the second half of Raskin Meehan.

Maybe for Mark, just on the CapEx. So you have $160 million of projects undergoing. I guess my question is what do you think you have left in the Brookdale portfolio once this is complete? And then have you started to size what Program Max 2.0 is for the Emeritus portfolio?

The Program Max 2.0 work is beginning now. Now again, a fair amount of the Program Max activity relates to what does a market need? So as we begin the joint planning process with the new combined portfolios in markets, that activity will occur.

I think the Program Max projects; you could basically never see an end to that process. We are now operating over 1,100 locations and the pipeline in the Brookdale side of things is growing. We are up to about 700 units in that pipeline right now.

We will see growth in the pipeline on the Emeritus side. It will take a couple, three years for that pipeline to grow, but I think the Program Max opportunities are out there as far as the eye can see.

Got it. Then maybe even just trying to size what that potential -- the amount of investment that would need to go into the Emeritus side, if we looked at maybe just historical average of what was spent per unit in the Brookdale portfolio and tried to layer that on to Emeritus, would that be a good way to think about it? Or what do you think within the Emeritus portfolio actually needs to get reinvested into?

Jack, this is Andy. Remember, as we have discussed with you before, we -- our game plan is to invest pretty heavily in Emeritus's assets. And we indicated to you that over the next three years we expect that to be $100 million more than Emeritus itself on a stand-alone basis is expected to invest in those assets.

We would have to get back to you on whether you could use our historical numbers as a proxy for that. I don't know the answer to that off the top of my head.

Again, part of -- this is a somewhat difficult question to answer in a brief way. One of the reasons we provide a fair amount of CapEx detail for you in our supplement is, particularly as it relates to major projects and EBITDA-enhancing CapEx, that CapEx can be very blocky.

And right now we are refurbishing 20% to 25% of the Brookdale portfolio per year. Now those projects actually have an economic life of 10 or 12 years, right? So we are very aggressively working through those projects now.

The average that you are asking for, you would have to look at a 10-year average essentially to get a useful number. We will have a similar phenomenon in the Emeritus portfolio as we deploy this incremental $100 million that Andy described.

Okay. Thanks, guys.

Kevin Fischbeck, Bank of America Merrill Lynch.

Good morning. This is actually Joanna Gajuk filling in for Kevin today. So just a follow-up on the question around the assumptions, and I appreciate you don't want to give any specific numbers.

But in terms of the occupancy and pricing assumptions for 2015, because I guess in the proxy before the deal closed the forecasts that were included there were including 110 basis points [occupant scale] for Emeritus and 4% growth in terms of the pricing. So is that the right way to think about legacy Emeritus and also the combined company in terms of the growth rates?

Again, we will provide more detailed guidance when we report the fourth quarter, but our expectations are materially consistent with what they were when we did the original underwriting. So those would certainly be within the range of what we are now assuming.

Great. Then on the impressive cost control this quarter, the 1.7%, and you guys I guess flat labor costs growth of 2%, so can you compare that 2% to what you have seen, for example, over the last 12 months?

And also any other items that you can talk about in terms of growth rates. For example, food or other items, if you can talk about how these growth rates compare to the recent history and maybe over the long term.

Sure, really nothing notable in particular on the cost side in the quarter. Utility costs were actually down year-over-year just a little bit. And utility costs represent 5% or 6% of our cost structure, so it can impact the rounding a little bit but doesn't really impact the big numbers a lot.

Labor costs continue to grow at 2%, 2.5% a year and we are getting some modest efficiency gains out of our service alignment program deployment across the Company, but there's nothing particularly notable to talk about.

We have seen a little cost pressure in food, but I would have to say, and I'd have to complement our dining services folks, they've done a good job adjusting to that. And of course, we purchased -- one of the good things about the size and scale of Brookdale is we have the expertise to forward purchase and hedge a number of commodity costs, including certain foods segments. So while we have seen a little bit of pressure there, I think we have adjusted to it quite well.

Thank you.

Darren Lehrich, Deutsche Bank.

Thanks, two things I wanted to cover. Just I guess first just revisiting the occupancy topic. It's obviously nice to hear about the recovery you have seen in June and I guess into July.

The a question I want to come back to is, as it relates to the occupancy trend, do you think there's any change at all in just the overall demand based on what you are seeing and any of the leading indicators that you have, like leads or other things? I just want to get a sense from you based on what you are able to see.

Yes, sure. Darren, I wouldn't say there's any huge macro or industry-wide change that we are seeing. Our leads are up. Our inquiries are up. Now part of that is because we have broadened their exposure through our enhanced marketing activities, which we have discussed before.

Our conversion rates are a little bit down. Again, we think that's because we are attracting more initial leads and that is to be expected, but I don't think there is anything really to remark upon.

I guess I would remark upon one thing. I think we are seeing a very rapid -- maybe more rapid than we would have expected a year ago, acceleration of folks moving towards the Internet and accessing -- their first access to Brookdale and I suspect to our competitors coming through the Internet channels. And we need to continue to adapt to that evolution, which again is happening, I would say, a little bit more rapidly than we would have anticipated a year ago.

But to underscore, we don't see anything fundamental going on here. Again, I would want to reiterate that what we are searching for is the balance between rate and occupancy. And that is -- we are trying to get more and more sophisticated around how we do that and we expect to get more sophisticated over the next several years. But it is really a search for getting that rate where we want it to be and that is what we are focused on.

Okay, that's helpful. The other topic is just it's pretty easy for us to see the 2015 outlook and make assumptions around that. I guess I just wanted to hear from you; as it relates to the near term, I appreciate that you have got a lot of complexity in the next several months, but just on a fundamental basis are there any disruptions that we ought to be thinking about operationally that might kind of impact the trajectory that you have been on and that Emeritus has been on?

Again, as Andy mentioned in his remarks I think, we are going into a very intensive integration period right now. We are converting a lot of systems, changing a lot of processes in the communities. I think we would be naive if we did not anticipate that there is going to be some disruption because of that.

Now we are certainly doing everything we can to minimize the disruption and maintain stability in the performance and operations of the business, but we are very aggressively integrating these two companies so that we can get to the synergies we have described.

Okay, that's helpful. Thank you.

I would just echo that, Darren. We really feel good about our plans. We feel good about the excitement and the esprit de corps that both the Brookdale team and the Emeritus team are showing. We really feel like people are coalescing around the mission and have the excitement towards what this company can be.

But to underscore what Mark said, it would be naive on our part to assume that with all of the level of complexity and change that is ongoing that there won't be a hiccup or two that we have got to deal with. That is part of -- that has always been part of our plan and always part of our expectation and is included in the expectations that we have announced to you all last night and talked about this morning.

Great, thank you.

Frank Morgan, RBC Capital Markets.

Good morning. I was hoping to change gears here and maybe get a little commentary about what you are seeing geographically around the country from a rate and occupancy standpoint and specifically on a product line standpoint. Are you seeing any areas of or pockets of exceptional strength where you are able to raise rates better or just any commentary you would have there? Thanks.

Thanks, Frank, for changing gears on us; much appreciated. I don't think there's anything really to remark upon with respect to geography.

We have -- like we always do, we have certain communities that are doing better than others, but really that's not geographically based in any meaningful way. As we indicated in our prepared remarks, of course, our retirement centers are seeing pretty sporty growth in rates over the past several years, so I guess I would remark upon that again. But I don't think there's anything that I would comment upon geographically.

Okay. And certainly nothing that you could attribute to local supply coming into the market or lack of supply coming into the market or anything unique to those local economies? Thanks.

Not -- again, Frank, our viewpoint on local new construction is the same that we have articulated before. We have isolated instances where new competition that is directly competitive with our existing products comes into being and when that happens we have plenty of warning.

We have plenty of detailed plans to deal with those things and we would see a little bit of -- well, we would see a little bit of uncertainty around that -- our incumbent community as that local market stabilizes with new competition actually coming on board. But really we do not see that much truly competitive new product coming on board in our actual local markets, where we have an existing community.

Okay, thanks.

Daniel Bernstein, Stifel.

Good morning. I will try to stay with at least one or two questions before going back to the merger.

On the entrance fee side, it looks like to me if you take trailing 12-month trends that the average entrance fee is going up. And I know it can bounce a lot depending on what units you sell, but do you see any -- are you increasing your entrance fees that you are charging people when they move in? Is that contributing at all to the increase in the entrance fees we are seeing this quarter versus any other quarters?

I would say you are seeing just a gradual firming in that product type and in that market. Our entry fees are going up a little bit, but I don't -- that's not a big driver. It's the volume of sales, Dan.

And as you indicated, from quarter to quarter that can be pretty chunky depending upon which units you sell, because there is -- and in which communities you are selling those, because there's a pretty big variance from one community to another. So I just would characterize it as general firming on the pricing side, but it's really driven by volume.

Okay. Then in terms of the pricing in private pay seniors housing, independent living, and assisted living are you seeing any change in trends towards incoming residents wanting larger units or even residents within your facilities wanting to move back to larger units now that we've moved well past the recession?

It's a big portfolio. I think you probably are seeing on the margin a little bit more of that than you would have seen two or three years ago when people were trying to get into studios and to downsize because of the state of the macro environment. So probably a little bit.

But, again, our goal is to maximize our rates regardless of the unit type or the unit size, and I don't think that is a big driver of anything -- of our results the past six months.

Okay. Most of the rate increase is you pushing the rate rather than any kind of change in mix of the unit size?

Yes, right.

Then back to the merger. I was trying to understand; what are the opportunities to refinance any Emeritus debt at lower costs now that interest rates are pulling back and you're seeing Fannie Mae, Freddie Mac mortgages at, again, pretty close to historic lows?

Are there opportunities to refinance some of the Emeritus debt? And if so, maybe what the timeframe of that might be? Can you do it in 2015 or is it going to take a longer period time?

There are some modest opportunities to refinance that there. The vast majority of Emeritus's current secured debt is fixed rate debt, Dan, so economically it's difficult to prepay that debt typically to go to a lower interest rate. There is a modest opportunity in 2015, not a huge one, but there is some opportunity in the near term.

Okay. But most of it is going to be later, 2016, 2017, or beyond that?

Correct.

Then one last question here. You had a very good quarter on the ancillary services. You talked about the census being up.

Are you seeing any impact from the Affordable Care Act? We are seeing some of the hospital operators reporting much greater utilization, but mostly from Medicaid. So I didn't think you would have much Medicaid benefit initially from the ACA, but are you seeing any at all? Are your results in the ancillaries being helped out by the ACA at this point?

I would say it would be hard for us to describe to you where we are seeing that. Now it is the case, though, -- I think the only thing I would point to. Our volume in the home health part of our business is growing, even in our same-store locations.

If you look at the detail in the supplement, I think our same-store NOI in the ancillary business is up 7% or 8% this quarter. A fair amount of that relates to growing home health volume. Some of that likely relates to the fact that a not insignificant number of home health agencies are going out of business, some of that relating to rate pressure that has gone into place over time, in part because of the Affordable Care Act.

So that is pretty modest linkage but certainly is helping our home health business, I think.

Okay, that's all from me. Thanks a lot.

Brian Tanquilut, Jefferies.

This is Jason Plagman on for Brian. Couple quick questions on the pending HCP transaction.

I know you have given guidance on the impact on CFFO for that deal, but how should we think about the impact on revenue and EBITDA once that closes? Then the second one is just how should we -- a little bit of color as far as the size and timing of the CCRC opportunity with the HCP JV.

Okay, let me take on your first question and Andy can answer the more strategic question.

I think if you look at the S-4, you will see in the pro formas our estimate of the impact of -- well, the historical impact of deconsolidating the entry fee communities. I think that's the best data you're going to have to work on.

Now from accretion standpoint, we articulated that that series of transactions is roughly $0.10 accretive in the third year and pretty much breakeven in the first year. The sort of detail in our income statement will change when we deconsolidate those locations, but from a net cash flow standpoint really not a meaningful impact.

Jason, this is Andy. On your second question, we are -- look, one of the reasons to do this entry fee joint venture and one of the reasons that we and HCP are so excited about it is we think there are acquisition opportunities in that space where there are a fewer number of competitive buyers.

The good news also is that if you can find a transaction to do it is, generally speaking, going to be at an elevated cap rate at a higher yield than what you could expect for more traditional senior housing assets. And each transaction is going to be a fairly large one, because these are big campuses.

So we remain bullish that we will be able to source over the next intermediate period of time transactions that this joint venture will be able to accomplish. Just by announcing the transaction actually we have had some calls from folks who are at least thinking about monetizing their assets.

So I can't make any guarantee or any promise to that effect, but we do think that is an important strategic component of the deal. It is an important rationale for that creation of that joint venture and we believe that over time we will be able to capitalize upon it.

Great. Thanks, guys.

Dana Hambly, Stephens.

Good morning, thank you. Andy, could you just talk about the reorganization of the leadership at the field level, what it was for Brookdale standalone, what it's going to look like for Emeritus, and how many folks have you kept from Emeritus to ease the transition?

Yes, Dana, generally speaking, our game plan has been to -- well, let me step back and say our field level span of control has not changed too terribly much from what Brookdale's existing span of control is when we incorporate the Emeritus communities into our field operating structure. In other words, just to simplify, we are keeping our span of control roughly the same.

We have focused hard on trying to keep the best of the best of both organizations and to maximize their positions within our operating hierarchy. That has resulted in us keeping a number of Emeritus communities -- I'm sorry, a number of Emeritus folks on board and running the communities that they have been running to date.

Again, we have seen a good melding of our corporate cultures between the two companies. I think it is probably fair to say that our systems are a little more -- we've invested more in our systems historically and in our corporate infrastructure. And I think that the folks who are joining out there in the field from Emeritus are excited about getting those new toolsets, which they believe will enhance their ability to operate their communities and to manage their businesses.

I hope that answers your question.

That's fair, that's helpful. Just last one from me; Mark, I'm sorry if you answered this. The CCRC JV, how is that going to flow through the income statement once that deal is closed?

We have roughly a dozen entry fee CCRCs that are in our consolidated income statement and balance sheet today. Those will deconsolidate when the joint venture is set up. So instead of showing the detailed revenue and operating expenses, we will show our share of the equity in earnings of that joint venture on the equity and earnings line of the income statement.

Okay, very good. Thank you.

I will now turn the conference back over to Mr. Roadman for any concluding remarks.

Thank you, Regina. With that, we want to thank you for your participation. We begin our fall conference season September 9 at the Morgan Stanley Conference in New York. I hope to see many of you there at that time.

And as you can tell, we have a lot going on. Management will be around today to continue to answer your questions and feel free to follow up. With that, thanks very much.

Ladies and gentlemen, this does conclude today's conference. Thank you all for joining and you may now disconnect.