Brookdale Senior Living Inc (BKDT) 2011 Q3 法說會逐字稿

Good morning and welcome to Brookdale Senior Living third quarter 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) Thank you. I will hand the call over to Ross Roadman.

Thank you, Rachel, good morning, everyone. I would like to welcome you to the third quarter 2011 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. As Rachel mentioned, this call is being recorded. A replay will be available through November 11 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 3 months following the call.

I would 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 yesterday and in the reports we file with the SEC from time to time. I direct to you Brookdale Senior Living's earnings release for the full Safe Harbor statement.

Before turning the call over to Bill, I would like to let everyone know that we're holding an Investor Day in New York City beginning with a dinner the evening of November 17 and continuing the next morning through noon. If you would like more information, please e-mail me or call me using my information on the earnings release. With that, I would like to turn the call over to Bill Sheriff. Bill.

Good morning. Welcome to our third quarter earnings call. We feel good about what we accomplished during the quarter. We adjusted our marketing efforts to accommodate a sluggish market, managed our costs and made tremendous progress integrating Horizon Bay, an addition of 30% to our portfolio.

On the revenue side, as we described last quarter, we tweaked some of our pricing and use of incentives during the second quarter to drive move-ins as we undertook to mitigate a more challenging environment. We were successful at re-establishing census growth and during the quarter we increased average census by 80 basis points from the second quarter. Without the ACP leased assets, added in September as part of the Horizon Bay transaction, we actually increased the sequential average by 90 basis points. For May, which was the low point from the year, to September increased the average by 140 bases points.

We had strong environment -- excuse me, we had strong improvement in our average census from the second quarter in both our retirement center segment, about 110 basis points, and our free-standing assisted living segment by 100 basis points. Encouragingly, we had an increase in the number of inquiries versus last year and the third quarter had over a 10% increase in the number of initial visits versus Q3 of 2010. This carried on into October and we had a gain in average census again. Going forward, we expect to see continued census improvement while staying within the boundaries of reasonable, competitive pricing.

The third quarter was also good for entry fee sales. We closed on 88 sales this quarter resulting in over $10 million of net entrance fee proceeds. Q3 was the first quarter this year that our IL move-ins exceeded the IL move-outs for the entry fee communities. Meanwhile, our senior housing rate growth, while down from Q2, was still nicely positive, a quarter-over-quarter same community senior housing rate growth was 3.3%. If you take out the impacts of the RUG IV skilling nursing rate, that rate growth was 2.2%. This compares favorably to the rate growth number of 1.6%.

Our ancillary services business, which does not include skilled nursing, has experienced a temporary leveling off of growth. It has hit a plateau because outpatient therapy has been rolled out to nearly all of the communities in the Brookdale portfolio and makes economic sense, this was before the Horizon Bay acquisition, and while the home health business has geographic growth opportunity remaining, agency acquisitions have slowed as we face the need to acquire [ARC TONC status] in states which are more difficult in time to consume. Despite the January 1, 2011, Medicare rate decreases which negatively impacted both outpatient therapy and home health, ancillary services revenue increased by 2.5% over Q3 of 2010 with growth coming from increased home health census volume.

The expense side was also negatively impacted by the CMS procedural changes. Our hospice initiative continues to make progress. We now have 4 markets surveyed and certified which means we can start providing services, and 1 market is already profitable, and a second at breakeven. 2 more markets are preparing to be surveyed.

Growth will return as our ancillary services organization prepares to roll out services into the Horizon Bay communities. We have initiated efforts to open in 3 to 4 markets per month starting with large communities in those markets. Each startup takes about 90 days to create the space and hire a sufficient number of therapists and home health nurses. Overall, the rollout plan is expected to take 2 years to complete. Beyond the normal recruiting issues, that does take time to effect a transition from prior preferred provider agreements as well as deal with on-site survey issues in some states. We are encouraged by the openness and support given at the local communities with regard to bringing these services in-house.

All in all, in the quarter we produced $65.6 million of CFFO, excluding $5.5 million of integration and transaction related costs related to Horizon Bay. This is nearly 10% higher than Q3 of 2010. The biggest contributor was the rate growth in senior housing. At the same time that resident revenue and management fees grew by 3.6%, we held our margin low. I will now turn the call over to Mark, at this point, to provide more details on the quarter.

Thanks, Bill. Our reported CFFO in the quarter was $0.49 per share, excluding $5.5 million of integration and transaction related costs, our CFFO was $0.54 per share. Looking at the details of our operating performance for the quarter compared to Q3 2010, the same community revenue increased 2.7% with average revenue per unit up 3.2%. Occupancy was down 50 basis points and expenses increased 3.4%. Breaking the same community data down further, our senior housing revenue grew by 2.7% with revenue per unit increasing by 3.3%. Our same community occupancy, while up 80 basis points sequentially, was down by 50 basis points compared to Q3 2010.

Senior housing expenses grew by 2.8%, below the 3% to 3.5% range that we projected. Our labor costs, our largest expense item, grew by 2.9%, a combination of a 1.9% increase in average wage rates and a modest increase in labor hours. Food, 6% of our cost structure, was up 3.4%, below overall food inflation as our purchasing and menu management systems assisted our team in controlling costs. Utilities, 7% of our cost structure were actually down slightly. While this expense is correlated to weather, our investment in re-lamping our communities is paying off. Excluding the ancillary services business, same community senior housing facility operating income grew 2.6% in the quarter. General and administrative expense, excluding non-cash stock-based compensation and integration and transaction related cost was approximately $28 million, which was 4.3% as a percentage of total revenue under management.

Turning to the balance sheet, we continue to strengthen our financial position and improve our flexibility. As we previously announced, during the quarter we closed the 7 year, $437.8 million first mortgage loan with Fannie Mae. Secured by 44 communities, 75% of the loan bears interest at a fixed rate of 4.25% and the remaining 25% of the loan bears interest at a variable rate of 30-day LIBOR plus a margin of 182 basis points. The loan is based on a 55% loan to value ratio and we have the right to substitute properties, important for our Program Max initiative and the ability to more fully utilize the collateral base when the asset values increase. We used the proceeds of the Fannie Mae loan along with cash on hand to refinance or repay and $445.2 million of mortgage debt which was scheduled to mature in February and August of 2012. We don't have any debt maturities in 2012 except for normal scheduled principled amortization.

We ended the quarter with $39 million of unrestricted cash. We add $35 million of outstanding borrowings on our line of credit which was used primarily to close the Horizon Bay transaction. At the end of the quarter, we had cash and undrawn commitments on our line that together totaled $230 million. Looking at the CapEx, which is included in our CFFO calculation, our spending in Q3 for maintenance CapEx was $8.7 million. Year-to-date, we have spent $25 million on maintenance CapEx for our communities.

Next, we're excited about the Horizon Bay acquisition. We added 91 communities with over 16,200 units, increasing our unit footprint by over 30%. We've talked before about the structure of the transaction, 21 of those communities are in a RIDEA joint venture with HCP, we triple net leased 12 communities from HCP and the remaining 58 Horizon Bay communities are third-party managed. We received significant management fees, excuse me, all of the ancillary services cash flow, joint venture ownership returns on some of the assets and the operational cash flow on the leased assets.

We closed the Horizon Bay acquisition on September 1, and there is 1 month of the acquired results in our Q3 numbers. Note that GAAP revenue increased in part due to $37.2 million of reimbursed cost incurred on behalf of managed communities which has an equal offsetting expense item. Beyond integration costs that we've incurred, the investment to date has been $10.7 million for the initial purchase consideration of Horizon Bay and $13.7 million for the 10% joint venture interest related to the RIDEA 21 communities.

In mid August, our Board of Directors approved a share repurchase program that authorizes the Company to purchase up to $100 million in the aggregate of Brookdale common stock. The Company is an insider to itself, so there are some limitations to when we can buy along with other restrictions such as daily volume purchase limitations. During the third quarter, the Company purchased 1,217,100 shares at a cost of approximately $17.6 million or a weighed average price of approximately $14.44 per share.

Finally, on our last call we gave guidance that 2011 CFFO will be in the range of 210 to 220 for the year excluding integration and transaction related costs. We remain comfortable with our expectations of occupancy gains and the continued focus of the organization on managing costs. However, given the uncertainty in the economic environment and the recent changes in the Medicare elements of our business, we would direct people to the lower end of the guidance range. I will now turn the call back over to Bill.

Thanks, Mark. As we look to the end of the year, we expect to continue to make progress, as we did in the third quarter. We continue to operate under the assumption that we will not see much improvement in the economy, focusing on occupancy and managing our costs appropriately. The fourth quarter will see the enactment of the new RUG IV skill nursing reimbursement rates. Our outlook remains the same with Medicare Part A skilled nursing revenues being impacted by $5 million or so per quarter including actions to mitigate the revenue and expense impacts.

We still estimate that the new rates will end up about 3% to 4% higher than what we received pre RUG IV with somewhat higher expenses. As we have made the case before, skilled nursing remains an integral part of our business strategy and a prodigal product line even after the rate reductions. We have a strong private pay insurance orientation with only about one-third of our skilled census being Medicare. CMS has published its final rules for outpatient therapy and home health for 2012 and there are some pluses and minuses for us, which we'll take into account as we prepare our 2012 numbers.

I want to close by describing the incredible job our organization has done to integrate the Horizon Bay communities into Brookdale. I think it is a very tangible example of the capabilities of our platform. We transitioned over 7,000 associates, 91 communities to Brookdale's core platform systems and processes. Within a month we successfully converted nearly all of the communities on to our 12 major business support systems that are highly integrated with the core platform. The only exception were a few CCRC type communities where we are in the process of transitioning our own facilities on to some new systems and deciding to not make them go through 2 conversions.

A few of the numbers behind all of this are impressive. We migrated 370,000 sales leads, sent out over 18,000 billing statements by the second week, and converted 6,000 vendors to our payable systems. We also initiated the rollout of our ancillary services that enhanced the resident experience and encouraged long-term wellness, built a network of over 350 Brookdale associates, these are executive directors, business office, sales directors, dining directors to assist Horizon Bay [peers] through the integration process. Created several venues to keep associates informed including a transition page on our internet site, weekly communications, conference calls and WebEx sessions, and developed a comprehensive set of training materials with a variety of learning formats including WebEx, in person and conference calls.

All totaled, in the second quarter and through the end of September, Brookdale associates spent over 90,000 hours and Horizon Bay associates over 40,000 hours, to prepare and execute a transition plan that made the change fairly seamless for associates and residents. The bottom line is that within 30 days we have switched all of the support systems, payroll, benefits, residence billing, payables, financial statements, purchasing, menu management as well as others, and provided a high level of support resources. So, that the corporate level we can capture the information we need and at the local level, community leadership can run their business on our systems with no further disruption. The success of the integration of Horizon Bay confirms our belief in the platform that we have built.

We're excited about the economics that we are seeing from the cost savings that we bring even to a large organization like Horizon Bay to the revenue enhancing opportunities we can add. Size and scale do matter, particularly when you have an infrastructure ready to capitalize on potential synergies. We continue to see opportunities in the market, though given the uncertain capital market, we will act judiciously. We continue to analyze the capital deployment alternatives available us to and we continue to invest in our Program Max projects. The economic environment is still challenging, but we believe that we are well-positioned to continue to enhance shareholder value through our organic and opportunistic growth. We will turn the call back to the operator to begin the question-and-answer session. Operator.

(Operator Instructions) Your first question comes from Kevin Fischbeck with Bank of America Merrill Lynch.

Okay. Thank you. Just wanted to ask a quick clarification question at the beginning. You guys repurchased some stock in the quarter, but the share count looked like it was actually up sequentially. Did you issue any new options or is that just due to the timing of the repurchase in the quarter?

I suspect that was due to the timing. If you're looking at the GAAP information, you're going too see some weighed average numbers there. We would have had some vestings of restricted shares occur, but I doubt that it would have been sufficient to change the numbers a lot. We also did issue some number of shares related to the Horizon Bay acquisition, so there are several moving pieces in that share count number.

Okay. So how many shares did you issue for Horizon Bay?

I believe it was just under 100,000 shares.

Okay. And then I guess I won't talk about shares and Horizon Bay, any comments on the HCP purchase of the stock?

We were unaware that they had intended to do that. We appreciate their thesis but it was not part of or negotiated in any way, the basic transaction that we were doing with Horizon Bay and, therefore, the transactions with them.

Okay. And you mentioned a couple of pluses and minuses in the home health and the therapy [regs]. It looks like both regs came in better than the proposals. Do you have any preliminary comments on kind of how you see those pluses and minuses coming out, I guess (inaudible) is still down next year.

It is better than what was anticipated. We will still need to make sure we work through all of the details and all of that and certainly want to incorporate that in to our 2012 plan and our guidance we will provide on the fourth quarter call for next year.

Okay.

(multiple speakers) They were better than what was anticipated.

Okay. And then maybe I missed it because you gave a lot of numbers in here. The CCRC pricing has been incredibly strong. Is that a function of ancillary services or the nursing home rate in there or is that just a function --?

All of our skilled nursing is in that segment, in that CCRC segment. So the RUGS4 pricing that went into effect October of last year and through the third quarter of this year does have an impact on that. The price -- even without that, the pricing in that segment has been pretty good.

And then I guess the core pricing, then, being good. Is that a function of mix or just is it just that you're growing the assisted living and the nursing home parts faster or is that strong actual rate growth?

I'm sorry, we threw so many numbers out all at once.

Yes.

We actually talked about the rate growth numbers with and without the impact of RUGS4. Our overall senior housing rate growth was 3.3%. Without the RUGS4 rate increase, the rate growth was about 2.2%.

Is that overall or is that in the CCRCs?

That is overall.

In the CCRC, the rate number was something like 10% or something?

Right. I don't have the CCRC number without RUGS4, but it would have been a descent number, probably not dramatically different than the balance of the portfolio, but I expect it would have been comparable.

Okay. I guess the one part of the business model going forward that you didn't really talk much about is the development plans. Any updates on new beds coming on line?

We had no openings during the third quarter, we'll have some in the fourth quarter and we're still working on the pipeline and still around the -- achieving that 1,000 units per year growth starting in 2012.

Do you know how many are going to open in Q4?

It's about 30 units.

Okay. All right, great. Thanks.

Your next question comes from Ryan Daniels with William Blair.

Good morning, it's Kristina Blaschek for Ryan today. I guess to start, can you talk a little bit more about the use of incentives during the third quarter to drive move-ins? Any additional color you can provide on the types of incentives to residents would be helpful, and then I guess also similarly, have you continued providing similar types of incentives so far for the fourth quarter?

I wish there was an easy way to describe this and there is not. Ross and I actually spent some time trying to come up with sound bytes and found that we failed miserably with sound bytes. The reality is the pricing needs to be very customized to every market and it is different within the market in most cases depending on the product type. So I don't really have a useful sort of high-level sound byte to give you.

As we stated on the last call, what we did in May was to reinitiate some of the toolbox items that we have used over the last several years and did tweak some of that a little bit, but there is nothing dramatically different or significantly different. As you can see from the effects of the rates and stuff through all of that, there has been nothing that moves the needle in a significant way.

Okay, great. Thanks. And the what is your visibility like on entrance communities looking into the fourth quarter? I think you mentioned before a $30 million net number for the year based on recent deposits and inquiries and visits. Does that still seem like a reasonable expectation?

I think so. We do see as we reported in this trickle -- improved trickle of people being able to sell their homes and October started out very good as the first month in the quarter and so we expect to still see some very modest but slow gradual improvement in those sales.

Okay, great. And then I guess maybe a bit broader of a question. If you think about the recent accountable care rule, it looks more favorable to the provider markets. Similarly, we have the 30-day readmit penalties on the horizon. Given your breath of services, particularly the skilled nursing facility units, are you working with any hospital providers to be a service provider of choice upon discharge?

Yes, we are. And we have a number of initiatives going on. We have, I think, 4 hospital systems right now where we have things in process and about another 8 or 9 that are in discussion phases. We have one place where we started with one hospital system to specifically address and focus on congestive heart, which is one of the re-admits focuses in a 9-month period. We have had zero re-admissions. Based on that, we're expanding that basic program elsewhere.

Dr. [Oslander], who's pretty well the one accredited for much of the research and things behind Interact and is focused and highlighted from CMS with Interact II and all. We joined him in obtaining a grant to develop the educational materials and training materials to support that and that is in 10 of our communities that participated in that and that is being rolled out to the balance of ours. So we do have some activity going on and do think there is going to be some opportunity not only within our skilled nursing but also with some elements that will, in essence, effectively come in to the assisted living part of the equation but it will take time to see how totally significant this develops. We're fairly positive about it.

Okay, great. Thank you for all of the color today.

Your next question comes from Jerry Doctrow with Stifel Nicolaus.

Thanks. Some of this has been covered but just 1 or 2 things. Did you have just the ending share count for the quarter to sort out the share question that came up earlier?

Jerry, I apologize. I don't have that in front of me. It will be reflected in the queue.

We will grab that number while we go to maybe one of your other questions. (multiple speakers)

That's fine. And then I just want to come back also to just entrance fees a little bit. Just trying to understand the dynamics there because entrance fees helped a bit this quarter. I think you said you had more move-ins than move-outs. I also wanted to get a little more color for the size of the purchase prices versus the refunds because I think what we had been seeing, maybe up until this quarter, is that the purchase prices were kind of trending down, refunds may have been trending up a little bit just reflecting when people bought kind of at the height of the market and it looked like now you may be selling units for a bit higher price. So just a little more higher color on that if you could.

Let me walk you through the math and then Bill can add some more qualitative color. We had 88 entry fee sales in the quarter. That was virtually identical to the third quarter last year where we had 87. The average sales price, excluding My Choice, in Q3 was $153,000, Q3 of last year was $146,000.

Note that $153,000 number in Q3 was also up just a little bit from Q2 and that has been relatively stable over the last year. That number does move around depending on exactly which units were selling and exactly where they are. The refund also can move around a little bit for the same reasons, depending on exactly which plans are experiencing move outs and so forth. I think, if anything, those numbers are probably relatively flat on a per-sale or per-refund basis.

I think that's totally on point. Our entry fee pricing ranged from below $100,000 to not quite $1 million but $800,000 on a few units.

Okay.

And you can get a fair variation depending on which units sell in the quarter.

We shouldn't be reading a lot into it then. And I think your guidance just indicates these sales are ramp-based in the fourth quarter which is a historical pattern, right?

That's correct.

Okay. And then we have Horizon Bay coming on. I know Mark had said, obviously one quarter in, any more color just on how that sort of effects the numbers? I want to get some guidance on management fee, what your expectation maybe for the fourth quarter.

We provided some guidance on what our expectation was of Horizon Bay in terms of the economics of that deal over the first 12 months and that really remains unchanged right now and let's -- we'll look back at the information. You saw one month of the management fee impact in Q3.

Okay.

The revenue under management with Horizon Bay is just somewhere just over $500 million in total, so let us think through how we can break that up for you a little bit for your management fee question?

Okay.

And then the number of shares outstanding at the end of the quarter was 120.911 million.

Okay. That's helpful. And then just last thing for me, just your view on some acquisitions. Obviously you just digested the big Horizon Bay. Are there more opportunities out there and what is your appetite for continued consolidation?

There are more opportunities out there. We will be judicious about what we do. It will depend a bit on the valuation perspectives and things. We certainly have had a change here over the last 4 months in terms of our cost of capital and that translates to hurdle rate. But it will be more of a function of things that fit us and can match the appropriate hurdle. We do expect to still be working on some and we, again, are very pleased with how the Horizon Bay integration has gone.

And on the Chartwell where you have that right of -- I don't know if it's first off or first refusal, whatever, is there anything that likely trigger a transaction there within the next year or so or do you think of that as a longer-term option?

All of that depends on Chartwell's decisions and judgments and we don't want to predict that or forecast that.

Thanks.

Your next question comes from Rob Mains with Morgan Keegan.

Good morning. Mark, I may be over thinking this a little bit, but when I look at the same-store numbers sequentially as you suggest you had a real strong occupancy number. The average monthly revenue per resident growth was a lot slower but then when I look at where your occupancy growth came in the quarter, it seems to have be more IL/AL, obviously than CCRC. When you sort of think about the mix of business that came in the quarter, is it fair to portray it as being kind of skewed toward the lower priced products?

I'm not sure. I think it was fairly balanced. From a pricing standpoint, our rate growth -- same store rate growth this quarter was 3.3%, second quarter was 3.6%, 3.7%, I think. So it is down a little, but it's pretty modest change. I think particularly if you look at our numbers compared to the [nic] data or some of our peers that have reported, we are seeing solid pricing growth.

Obviously it's not at the levels we saw back in a very kind of economically healthy period of time, but still descent growth, particularly compared to where our cost growth is at, but the occupancy growth was strongest with independent living and assisted living. CCRC segment was relatively flat quarter-to-quarter so I think I would say it's relatively balanced. The entry fee business is still, if you look at the whole year, it has lost just a little bit of occupancy, though in the quarter we actually had more move-ins than move-outs, so things seem to be relatively stable there. I think I would describe it as a little more across the board in terms of occupancy growth.

Yes, I was looking at the reported average monthly revenues per resident, the difference between the second quarter, 45/75 and third quarter, 45/85 but you raise a good point that you got a positive impact from ancillaries in Q2 and not in Q3. So, yes, that could explain some of it.

The other thing, they can skew the numbers just a little bit as you go quarter to quarter is -- remember, our skilled nursing is mostly paid, well, exclusively paid on per-day of service. The other product lines are paid monthly rates so as you go from one quarter to the next and the length of the quarter changes by a day or 2 and we are trying to focus here on 1% or 2% changes in rates, it all can get a little bit fuzzy.

Right. And then touching on that idea of IL occupancy, kind of -- it strikes me that the thesis that the ILs just driven by the economy may be breaking down a little bit given the numbers that you and some of the others have had in the quarter. Could you comment on where that strength is coming from there?

Well, I think Bill and I can both take a swing at this one. I think IL even back in 2006 or 2007 has never been a completely discretionary product. There is some amount of need that goes into the buying decision there. Now, clearly as we've gone through the economic downturn and people have tried to defer buying as long as they can, it has probably become marginally more need based but it has always involved some level of need and some level of security for the resident and the family.

I think during the economic -- well, over time what you have seen are more services being provided for people at their home, their residence, also at their home, their independent living unit. Whether it's Medicare, home care or private pay home care, or whatever the case may be, I think in general, folks are learning how to extend the supportive environment more in to independent living and, if anything, this economic downturn has probably accelerated that to some extent.

I think Mark's explanation is right on point again. Again, what's playing out in aging and the growth of the people over 85, multiple chronic conditions and some functional limitations, not all of those have to go to assisted living and, as Mark described, the service improvement has assisted independent living and competing and if you look at the [nic] data over a period of time and look at the last 7 quarters of our occupancy in that area, it's been really quite flat.

As we continue to work on our assets and improve the basis and introduce the supportive services, that segment is competing better. I think it was always was over played in terms of this issue of this total need driven versus total discretionary and I think one backs off and looks at the data over the last period of time, the nic data and our data, independent living is alive and well.

Fair enough. And then, Mark, one balance sheet question. Could you discuss your thoughts about the 2013 debt maturities and when you want to refinance those?

Well, historically we have -- if you look at how we have refinanced the last couple of years' worth of maturities, historically we have done that kind of 4 to 5 -- 4 to 6 quarters out. The profile of the 2013 maturities does involve a few larger single property loans on some CCRCs. Those tend to be floating rate loans so there is more flexibility to deal with those earlier. So, obviously our team is looking at the options there. Other than that, I don't think the play book on refinancing -- 2013 looks a lot different from what we have done the last couple of years.

And as we've said, we expect to make another small increment in that before the end of the year and we still have that same expectation.

Great. Thank you very much.

Your next question comes from Frank Morgan with RBC Capital Markets.

Yes. Actually, I have a followup on that 2013 question. Also, just noticing you drew down on your line this quarter and I was curious, in the very near term, what is the strategy with regard to repaying that back down? Once you work your way through this big 2013 bolus, what are your thoughts, longer terms, about the uses of cash and particularly any interest in perhaps paying a dividend again? Thanks.

That is a very broad question. The line draw that we had at the end of the quarter was largely because we closed the Horizon Bay acquisition during the quarter and we also executed $17 million or $18 million worth of share repurchases. If you add those 2 numbers up, you actually get relatively close to the amount of line draw that we had.

Where the line is at as we go through this year will depend on what kind of capital we deploy, not to get to trite in my answer here, but depending on what we do with share repurchases, depending on what happens on the acquisition side, we may or may not have line balances outstanding. Obviously, as we generate cash flow and have cash on hand, we pay down the line and then it just becomes a question of what the capital deployment opportunities are, which is really the answer to your other question as well. There are a range of capital deployment opportunities available to us, Program Max, our expansion and redevelopment of our assets program tends to be a very high return on capital as we look at the range of capital deployment opportunities.

Depending on where our stock is trading, clearly repurchasing our stock can have a very high return profile. Acquisitions clearly can be very attractive to us, particularly over time as if you look at the growth fundamentals and growing the business and building out markets so if we are unable to deploy capital with meaningful returns with that range of things, clearly the question of a dividend would come up or the question of a broader share repurchase would come up. Frank, I think it's difficult to predict that because it's just going to depend on the opportunity set over time.

Okay. Thanks.

Your next question comes from Brian Sekino with Barclays Capital.

Hi. Thanks for squeezing me in here. Just a quick housekeeping question. I saw the home health unit serve was down sequentially. Were there some closures in the quarter?

No. I apologize. We actually had a data goof. In our supplement that we filed for the second quarter, the home health units shown are all home health units served both consolidated and managed and the third-quarter number is just the consolidated unit served. It actually didn't change much. We had a mistake in our numbers in the second-quarter supplement.

Got it. Thanks. And then just a quick followup on the cost of capital comment before. Given where your cost of capital is, are you looking more aggressively at management opportunities similar to Horizon Bay?

Again, our position on third-party management, our view there will be not to go out and pursue just pure third-party management. If it has some strategic benefit in terms of extraordinary health and creating -- completing a critical mass in the market, that might be one exception. Where we have the opportunity for future investment or purchase of assets, it will certainly play into the picture there and I think there are going to be more of those kind of opportunities. In a sense, you may see some growth in that but it is generally going to be on the basis of how that fits with longer term market development and control of assets.

Okay, thanks a lot.

There are no additional questions at this time. I would like to turn it back over for any closing remarks.

Thank you, Rachel. We appreciate everyone's participation. We look forward to seeing people at our investor day in a couple of weeks. And, with that, management will be around during the day for followup questions. We look forward to hearing from you and, again, thanks for your participation. Thanks.

Thank you, ladies and gentlemen, for participating in today's third-quarter earnings call. You may now disconnect.