Brookdale Senior Living Inc (BKDT) 2013 Q3 法說會逐字稿

Good morning. My name is Tanya, and I will be your conference operator today. At this time I would like to welcome everyone to the Brookdale Senior Living third quarter 2013 earnings conference call. All lines is 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 now turn the call over to Mr. Ross Roadman, Vice President, Investor Relations. Sir, you may begin your conference.

Thank you, Tanya. Good morning, everyone. I would like to welcome you all to Brookdale's third quarter 2013 earnings call. Joining us are Andy Smith, our Chief Executive Officer, and Mark Ohlendorf, our President and Chief Financial Officer.

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 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?

Thanks, Ross. Good morning, I want to add my welcome to shareholders and other participants for our third quarter earnings call. Brookdale's third quarter performance was strong, and we are quite pleased with our results. Before discussing the details of the quarter, I want to update you on certain elements of the strategy we outlined for you over the past three quarters.

First, as evidenced by the substantial increase in our same community operating income, we have been laser focused on the organic growth of our current portfolio by improving our sales and marketing functions and our operational execution. The enhancements we made to attract prospects are producing more leads, better conversion ratios, and thus more move-ins. The enhancements -- these enhancements include our brand activation, our internal and external call centers, and new digital media initiatives.

Second, the changes we made at the beginning of the year to flatten our field organizations have resulted in better operational effectiveness, tighter cost control, and greater responsiveness at the community level. Third, as evidenced by the 170 basis point increase in the third quarter operating margin for the senior housing portfolio, the investments we've made in support systems are paying off with increased operational efficiency.

An important component of this effort is our service alignment initiative. Service alignment is a proprietary process that benchmarks our labor standards to ensure sure first and foremost that we provide top quality services while secondarily ensuring that we do so as efficiently as possible. Matching our labor to meet those benchmarks makes us a more efficient service provider, and it ensures that we maintain our high quality -- our high standards for quality.

Fourth, we continue to deploy our free cash flow into areas that produce the most attractive returns. Our Program Max initiative with expected mid teens returns is just now gaining momentum, and we are just beginning to see the impact on our results through increased occupancy, better pricing and new capacity or repositioned units.

We also acquired the ownership interest in a number of communities so far this year. We will remain active in seeking strategic and tactical acquisitions in a fragmented industry that has considerable potential consolidation opportunities.

Lastly, we continue to innovatively expand the services we offer in the marketplace. We are pursuing opportunities such as hospice services and private pay home care, both inside of our communities and outside of our walls. We place a high premium on innovation, as we analyze the programs we deliver, the services we offer, where we offer those services, and even the customers we serve.

Turning now to third quarter results. We produced strong growth in operating income and cash flow. We produced over $75 million of CFFO in the third quarter, nearly a 14% increase over the third quarter of 2012. Operating income was up almost 9% and adjusted EBITDA grew by 7%.

This year-over-year improvement in both our consolidated and our same community results came through rate growth, occupancy gains, and solid expense management. Consistent with the first two quarters of the year, our rate growth moderately exceeded our expectations. Senior housing rates increased 2.8%, up from last quarter's 2.5%. Our rate growth continues to gradually trend up as we build occupancy and reduce discounting.

Looking specifically at occupancy, we increased our quarterly average occupancy by 100 basis points for the consolidated portfolio when compared to the third quarter of 2012. Sequentially our consolidated occupancy was up 70 basis points. We saw similar positive improvements in each of our segments and each of our product lines. As we said last quarter, we expect occupancy to gradually build through the balance of this year, and October followed the trend, with average consolidated occupancy up approximately 20 basis points.

We continue to be excited about our national branding activation efforts. We believe that we have a meaningful opportunity to differentiate Brookdale and our communities in a marketplace that doesn't have a strong national brand. Over time we are confident that the name Brookdale will become top of mind for our prospective customers and will come to symbolize the trusted provider of the highest quality senior living solutions.

We are using a multilayered marketing approach with local, regional and national activities. Some of these are traditional, and some are innovative and new. We are creating better awareness of the benefits of our platform and greater opportunities for engagement with our seniors and their families, with the final result of more people experiencing the benefits of what we do and becoming advocates for the brand.

While it is still early, we are measuring a number of metrics to track our progress since the brand activation began in May. Here are a few examples of the metrics we are tracking. Comparing the 150 day period pre and post brand activation, we saw that our website visits were up 22%, searches originating from mobile devices were up 96%, and prospect searching for specific community information on our website increased by 27%. We feel it is critical to continue to evolve and innovate our sales and marketing activities to adapt to a changing marketplace.

Our third party call center, which handles and qualifies inbound phone inquiries, responded to 40% more calls in September than in May. Our internal call center, which we call the Brookdale Solutions Center, focuses primarily on two area of opportunity. First, speed to lead. That is, more rapid response to internet leads. And then secondly, to nurturing relationships with current but older prospects in our lead bank.

We also are continuing to develop and enhance our social media presence. One immediate benefit of social media is the creation of new channels for public advocacy for the communities by our satisfied residents and their families.

Recently a number of questions have arisen regarding new construction activity in the industry. As the NIC data has shown, there is an increase in construction of new units. From a high level perspective this is neither surprising nor alarming for Brookdale. Why is this? Well, first, demographics are inevitably going to broaden and deepen our market. There are a number of ways to measure demographic growth, but all of them show demographic tailwinds for the industry.

For example, consider the growth of those over 85 with incomes over $50,000. This is our demographic sweet spot, and today there are 4.4 million people in this group. But that number is estimated to grow by 7% per year through 2015. Second, the level of new construction is still fairly modest, both on the historical basis and when measured against current inventory. The NIC data for the top 100 markets shows 19,250 senior living units under construction, or 2.5% of inventory. That's not a large number in comparison to the almost 800,000 units of current senior housing capacity in these markets, and it is meaningfully lower than the 7% demographic growth that I just described.

Of course, the real impact of new construction is more subtle than the broad big national numbers, which don't tell the whole story. We have a very diversified portfolio, both by geography and by product type. So one has to look at the local markets and really local submarkets in order to make accurate assessments. As we do our planning, we look carefully at our local markets and what is happening in the competitive landscape.

For new competition we look at proximity, which we typically measure as a five mile radius, and then measure the demand in that submarket to assess the impact of new capacity. Telescoping down this way shows that the vast majority of the new construction is actually not within our submarkets and is therefore not actually competitive with our existing communities.

That said, there are a few submarkets where we expect new competition over the next several years. In those instances we plan a response by implementing a comprehensive plan, what we call new competition readiness action plans, to address a number of response areas, including marketing, pricing, and potential CapEx for the affected community. The reality is that a new competitor brings added marketing dollars into the market, usually generating additional demand, and we most often get a shot at those prospects to sell the value of what we do.

So, while we keep a watchful eye on new construction activity, we don't currently believe that the current industry supply/demand equation is unfavorable to Brookdale, and the new construction is far from an irrational level. And on a local level, in the limited instances in which we actually face new competition, we believe we are well equipped to minimize the impact of the new supply.

In conclusion, we often tell you that what your associates do is more than a job, it is a passion. Nothing represents our associates' passion more than what they have done for the Alzheimer's Association this year. Over the last several months our associates have been involved in multiple activities and have raised almost $650,000 for this cause. I want to take this moment on behalf of those affected by this terrible disease to thank our associates for their caring, and again showing that this is more than a job, it is a calling.

I also want to thank each of you for your interest in Brookdale. Now here is Mark to review the financial results in more detail.

Thanks, Andy. After the market closed lat night we issued our press release summarizing our financial results for the third quarter of 2013. We've also posted on our website, Brookdale.com, our quarterly supplemental data package. Let me walk you through the key elements of our performance for the quarter.

Looking at key non-GAAP financial performance metrics, we saw that excluding certain items from both periods our cash from facility operations or CFFO for the third quarter totaled $75.2 million a 13.8% increase over the third quarter of 2012. Adjusted EBITDA was $114.1 million, a 6.8% year-over-year increase. For the initial nine months of 2013, CFFO was $219.9 million, again, excluding certain items from both periods, a 13.5% increase from the first nine months of 2012.

Our same community data for senior housing for the third quarter of 2013 compared to the third quarter of 2012 continued the solid performance trends we've seen this year. We produced a 3.8% increase in same community revenue due to a 2.5% increase in revenue per unit and 100 basis point improvement in occupancy. For the third straight quarter our initiatives to manage same community costs resulted in modest expense growth at 1.7% for the third quarter.

We continue to see progress from our service alignment system that Andy mentioned. This process improves the matching of labor required to provide quality services to our residents even as we add associates to accommodate occupancy growth. Also, savings in our employee health benefit plans contributed to moderate the cost growth.

Senior housing same community operating income grew 8.1% versus the third quarter of 2012 and 6.4% for the first nine months of 2013 compared to the same period in 2012. We drove top line consolidated revenue growth of 4.7% for the third quarter over the third quarter of 2012. Total occupancy grew by 100 basis points year-over-year.

Looking at the year-over-year growth in occupancy by segment, retirement centers were up 110 basis points, assisted living was up 90 basis points, and together the CCRC segments were up 80 basis points. Our overall sequential occupancy up 70 participants from the second quarter of 2013. Compared to the second quarter, the quarter average occupancy for assisted living segment up 60 basis points, and the retirement center segment was up 80 basis points. Average occupancy for both of these segments was over 90% for the first time in quite awhile.

Occupancy in both CCRC segments was also up modestly over the second quarter. During the third quarter we saw continued pricing strength, with a 2.8% year-over-year increase in senior housing average revenue per unit, which raised our year-to-date growth rate to 2.7% compared with the first nine months of 2012.

Our net entrance fee cash flow came in at $11.4 million. Three quarter entry fee cash flow was less than last quarter due to higher refunds and fewer sales. We continue to believe that this market is improving.

As a reminder, this product line has a two year sales cycle, and sales can be somewhat blocky. We do not believe that our third quarter entry fee sales results were materially impacted by negative macro economic or general economic factors. We have 43,000 leads in the entry fee lead bank and bring in over 2,500 new leads per quarter.

We continue to see consistent activity from our entry fee leads and feel good about entry fee sales going forward, and we are off to a good start in the fourth quarter with both deposits and sales. Year-to-date, net entry fee cash flow was over $35 million.

Our ancillary services business produced $61.2 million of revenue in the third quarter, a 7.6% increase over the third quarter of 2012. Operating income for the ancillary business for the third quarter was roughly flat with the third quarter of 2012, as the business continues to be adversely impacted by therapy caps, sequestration reductions, and rate reductions in outpatient therapy.

We expect continued volume growth in home health and hospice. We now have ten hospice agencies in operation, five of which are in startup. We continue to anticipate that full year operating income for the ancillary service segment will approximate last year's performance.

General and administrative was $45.8 million for the third quarter of this year. Included in our G&A costs is noncash stock-based compensation expense of $6.9 million and integration transaction related and EMR rollout costs of $4.7 million. General and administrative expenses for the quarter excluding these items was $34.3 million, a 5.4% increase over the third quarter of 2012. G&A expense net of the noted items was 4.3% as a percentage of total resident fee revenue under management. Our Q3 spending on routine CapEx, which we reflect in the CFFO calculation, was $12.1 million.

Looking at other uses of cash, we continue to put a top priority on reinvestment in our portfolio. We spent $29 million in the third quarter and $76 million year-to-date renovating our portfolio to improve the competitive position of our communities and to drive higher occupancy and rate growth. We completed 12 Program Max projects so far this year. In addition we have 21 more Program Max projects under construction, with 19 more in active development.

Our capital structure continues to be sound. Our ratio of debt to adjusted EBITDA is 5.7 times, slightly below our target, and is trending down. We have negligible debt maturities through the end of 2014, and we have over $230 million in available liquidity from cash on hand and availability under our line of credit.

Finally, turning to guidance. Given the third quarter's results, we are refining our full year guidance to between $2.40 and $2.45 of CFFO per share. This guidance includes a partial year's accretion from the recently closed seven community acquisitions. Otherwise, it does not include the impact of future acquisitions or dispositions, nor the expenses from transactions integration and EMR rollout costs.

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

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

Great, thanks. Just wanted to see if there was any more color to -- how you guys were thinking about the general backdrop and demand for senior living? I guess your commented on the entrance fees not being impacted by the macro environment, any color as to why you feel like that was not the case in the quarter? And then if there is some way to kind of parse out what you think the core growth in your business is versus maybe what the new marketing initiatives have added to the occupancy?

Okay. I will take a crack at that, Kevin. First up on the entrance fee front, as Mark said, these are long lead time sales activities, and they can be a little chunky. We feel very good about where the entrance fee business is heading for Q4. The month of October has been very strong, both in terms of lead activity as well as the deposits we have actually taken. So, again, we feel like these -- our markets -- our entry fee assets are in markets that are improving, and we think -- we feel positive about where that part of our business is heading for the fourth quarter.

In terms of marketing, if I understood your question, we do believe that we're seeing -- we're getting traction from our branding activation, from our focus on improving our marketing function and our sales execution. As a result of that we are seeing more leads. Year-over-year our lead base is up quite significantly. And we think we are just doing a better job in terms of executing and converting those leads into move-ins. I hope I covered all of your questions there.

Yes, I guess as far as the lead side of things, I guess the numbers that you kind of included this quarter were very similar to the numbers in the first three months. That's good to see that the momentum is staying on. Any reason to think that number has room to improve again next year? Or is this -- just trying to figure out how much of the lift we are seeing this year is related specifically to that and whether there is something to think about as being a tailwind into next year?

We believe that this is a long-term gain, and we believe that our branding activation along with the enhanced marketing activities that we are doing are both, near term and intermediate term and long term, are going to produce long-term gains. So we would expect as we go through next year to see all of these metrics continue to improve.

Okay. And then on the ancillary side, the therapy volumes were pressured. How do you think about that business? Has that kind of reached a plateau now? Has it bottomed out, given than we now have the new rules kind of in for a more sustained period of time? Or do you think that there will be pressure on that next year?

Well, obviously we are beginning to get some visibility from a rate standpoint into what CMS is planning for 2014. Both home health and likely outpatient therapy will be under some rate pressure. We are responding there to adjust the cost structure where we can and when we can.

Beyond the economics of the business though, the ancillary services part of what we do is critical to our brand positioning and our product positioning in local markets. It is an important tool as we reposition and integrate acquisitions that we might do. So you are right, there may be some short-term economic pressure there where the growth rates aren't as high as they had been historically, but in a broader sense in terms of how we package our service and our brand, continues to be very important.

Okay, great. Thanks.

Thanks, Kevin.

Your next question comes from the line of Jack Meehan with Barclays.

Thanks, and good morning, everybody. I appreciate the color on the construction, and I like the five mile radius. Is there any way to tell what percentage of your communities fall within that range and have some sort of construction activity, and then whether or not it is a similar property type to what you have in that market?

Well, again, Jack, I don't have the statistics right here with me, but we do track that very carefully. Let me -- in fact let me give you an example. I was looking at Houston yesterday, which -- as part of our budget planning process for 2014. So when you look at Houston, we operate 22 communities in 15 submarkets with around 4,100 units in operation. In total the Houston market has 135 communities with senior living capacity of about 16,700 units.

Now, the NIC data shows growth of 11 independent assisted and memory care communities, one of which we are going to manage, which is almost 1,125 new units or 6.7% of the total capacity in the broader Houston market. However, against the new supply, NIC estimates that the Houston market of people older than 85 with incomes greater than $50,000 -- again our demographic sweet spot -- that demographic is going to grow at compound annual rate of 9.2% over the next several years.

In addition, 85% of the new units under construction are assisted or memory care, which is well below the amount by which NIC indicates that assisted and memory care markets in Houston are already today undersupplied. So as we analyze our 15 Houston submarkets, we really see that there are only three markets that have a slight bit of oversupply after all of this new construction is completed in the next several years.

In those three sub markets we have 257 units. Again, we are providing competitive response action plans to deal with the new competition with respect to the 257 units. So while Houston could appear to be an at-risk market based on the general NIC data, it is a huge MSA with a lot of underserved areas and a growing target population that is going to absorb the new construction.

So that is the way that we analyze each of our particular submarkets when we think about what new construction looks like. I hope that is helpful to you.

Yes, that makes a lot of sense. And then on the branding it sounds like you have good momentum. Is there any way to parse out was there any sort of contribution to the occupancy that you can segment to that? And do you think more it is in the lead phase and then maybe we start to see bigger contribution in the fourth quarter or in the next year?

We expect to gradually improve all of the metrics that we're tracking around the marketing -- all of our marketing functions, including the brand activation. There is no way to parse out what the brand actually is producing when comparing that to the other marketing innovations that we are implementing and what we believe is better sales execution. So I can't really say, oh, hey, the occupancy improvement part of it is directly associated with the brand.

All we can do is track the general metrics, some of which we just outlined for you as we go forward. But again, we think that momentum will continue to build in terms of developing new leads, more inquiries and producing greater conversion ratios so that we will see greater move-ins.

Got you. Okay. And then just the last one for me on the rate growth modestly exceeding expectations. What sort of increases are you seeing on the units that turnover? Is it above that rate? And do you think that could be an opportunity as well?

Well, certainly as we go forward it will be. Again, both the retirement center and assisted living segments averaged over 90% occupancy in the third quarter. We have talked for the last two or three quarters about the fact that the mark to market features of the rates have just started to turn positive.

So certainly the farther into the future you go and the farther we sustain the occupancy momentum that we have seen, the more rate growth that will support. Now, again, as a reminder, we are in a fairly low inflation environment today, so what one might think of as reasonably heady rate growth today would be different than it would have been in 2005 or 2006.

Got you. Okay, thanks, guys.

Thanks.

Your next question comes from the line of Nick Heymann with William Blair.

Thanks for taking my question. As occupancy continues to tick up, I was wondering if you could parse out the benefit you think you could see to the rate growth from using lower discounts, or still no real changes there?

Well, we think as occupancy trends up, we will be able to reduce our use of discounts and that our rate therefore will gradually increase.

Okay. And we saw that you recently froze some wages, given the Medicare regulatory changes impacting innovative senior care. How much can that offset pressure, and what else are you doing to manage that operating segment under the regulatory changes?

Well, first, we froze wages for a small portion of our associates that were working in the ISC division. We did that actually at the beginning of 2013, not -- I saw some press releases that made it seem as if we did it in the middle of the year. We did that in order to respond to the -- what is happening in the regulatory environment or the rate environment. It's unfortunate. We don't like to it, that but it as reality that we had to do to make that business more productive.

We continue to search for ways to make -- to respond to the reimbursement headwinds that ISC and all -- anybody who is being compensated by Medicare is facing, and so we are searching for ways to be more productive, more efficient, and more effective in the delivery of the services, because frankly they are extremely important to our residents.

Okay, thanks.

Thank you.

Your next question comes from the line of Darren Lehrich with Deutsche Bank.

Hi, good morning. This is Dana Nentin in for Darren Lehrich. Just wanted to see if you could talk a little bit about rate growth trends you are seeing in your top quartile versus bottom quartile communities in terms of occupancy, and if you are seeing any notable deviation?

Obviously, that is something that we look at, and as Andy mentioned, we are right in the middle of the planning process for next year. So one thing we focus on is just as you described, how is rate growth and the different features of rate growth, whether discounting, lack of discounting, street rates and those kind of dynamics, how are those playing out against the various types of portfolios.

We are seeing higher rate growth in the high demand higher occupancy markets. It is not a factor higher, but it is somewhat higher as you get into the higher occupancy markets. Again, there are lots of different markets, there are lots of different product mixes in different markets, and we are in a general environment today where inflation is relatively low. So you certainly do see a difference in rate performance in different markets, but the range is relatively narrow.

Okay, great. And then just -- last quarter you mentioned you were about midway through rolling out EMR to the outpatient, I think with skilled nursing on deck next. Can you just update us on, I guess, where you are at this point and how much is left?

Sure. We are over halfway through the process now with outpatient therapy. Should complete that deployment by the end of November, early December. Obviously then we go through a few months where, when we are fully deployed, we're tweaking and training and refining the system deployment. But that's pretty close to being deployed out in the field.

Okay, great. And then just one more if I could. On cost controls, how much more run rate do you think you with respect to cost controls?

Interesting question. We have seen relatively low cost growth now for three quarters in a row. We are certainly focused on it as we go into next year. The magnitude of that I think we'll describe when we do guidance in the fourth quarter.

Okay, great. Thanks a lot.

Thanks, Dana.

Your next question comes from the line of Daniel Bernstein with Stifel.

Good morning.

Hi, Dan.

I guess I will be the one who asks about the real estate and where you are in the strategic review of the real estate. Is there still a strategic review? And has interest rates and the suppression cap rates in the senior housing industry changed your view how you want to think about the real estate strategically? Just haven't heard about that in quite awhile from you guys -- a couple of quarters, so I just want to get an update on where you are on that.

Sure. Thanks for asking again, Dan. The -- we really don't have anything more to stay than what we said in the past, but I will reiterate it. Mark and I and the management team here, we believe that it is part of our job to constantly assess what is the best way to maximize the advantages of our capital structure, and so we are continuing to do that. And one of the elements that we look at is what is happening in the rate environment, and that is simply one factor of many that we are constantly assessing as we try to figure out what is the best way to maximize value for our shareholders. Don't have anything else to say other than what we said in the past on that front.

Okay. And then in terms of -- I just want to get back to the expense issue there. When I think about the year-over-year expense, facility operating income growth and margin improvement, how much of that is maybe last year's third quarter being very high utility expenses, with heating costs across the country versus I guess I would characterize it as more normal heating expenses for this summer? Is there -- was there a pickup on the utility side? And then also the other part of the expense equation that I'm thinking about is, as you talked about the increase in internet leads and move-ins, how is that affecting the amount of your expenses for referral sources like A Place for Mom, et cetera, and how big of an impact has that been for your expense control so far?

Wow, this is a memory quiz. On the cost side, it was a more moderate cooling quarter this year, but utility costs are 5% or 6% of our cost structure. So that can have some minor decimal effect on the cost growth, but it is literally a minor decimal effect.

Beyond some additional efficiencies on the labor side of things, the one other thing that would have impacted the numbers this is our employee benefit healthcare costs. If you remember last year we had had fairly difficult experience, particularly in terms of a few high cost claims. This year we have not seen that. We have had much better claim cost experience in the plan. So probably the second behind the service alignment efficiencies would be the changes in healthcare costs.

Dan, on the internet lead front, I wouldn't say that our cost of acquiring leads or move-ins was materially reduced for the third quarter. That is not what drove the 1.7%. Now, I would underscore over the longer haul, as we make these investments in our brand activation and new and better and more innovative marketing techniques and better sales execution, we would expect the cost of our lead acquisition to go down, but that was not a driver in the third quarter.

Okay. But if I had to characterize the future expenses, you -- there was nothing really abnormal in the quarter. You would expect to maintain this kind of operating margin with normal seasonality going forward. Is that a correct characterization?

Yes, the seasonality, yes. But again around general cost growth, we will give folks some perspective on that as we wrap up the budget process and provide you some guidance for next year you.

Okay, yes, you did mention that just a moment ago. One other quick question in terms of development. How do you think about you guys developing your own facilities at this point -- own it, operate it -- versus managing assets for somebody else that is developing? What is that tradeoff? Have you thought about developing your own assets at this point?

Yes, we think about that type of thing all the time. First and foremost our principal use of our free cash right now is to invest in our current portfolio through Program Max and simply making investments in the physical infrastructure that we currently operate; own, manage or lease. That is our number one use of our capital, and that right there is a very significant development pipeline. Very significant.

I think as you look out over time it's possible that we might in a moderate way, where we believe it helps us in local submarkets, we might partner with other folks to develop de novo communities, but that is not a big driver of our plan going forward. We believe we have significant -- actually huge opportunities to continue to make the investments in our current portfolio where, again, we are seeing mid teen returns, and so we expect that to be our principle focus in terms of new development.

And I guess the right characterization, [it's] those program, ex EBITDA enhancing, would be a lower risk, maybe higher return than building a de novo new property.

Yes, exactly. I wish I had said that.

And again, though, we got to be careful not to split hairs here, because we are often building new capacity in Program Max. So if we build a new 40 unit dementia care building next to an existing retirement center, that's our version of development, and we get a lot of those economic yields that you see from new assets, but at a much lower risk than you would with true greenfield type development.

(Inaudible -- multiple speakers).

Right, but you are building capacity where you know you need the capacity. That was my point?

Yes, of course, of course.

All right. That is all for me. Thank you.

Thank you.

There are no further questions at this time. Do you have any closing remarks?

Just wanted to say thank you for participating. Management will be around if you have follow-up questions. With that, have a good day. Thanks.

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