Sonida Senior Living Inc (SNDA) 2004 Q1 法說會逐字稿

Good day, and welcome to today's Capital Senior Living First Quarter 2004 Results Conference Call. Today's call is being recorded. At this time, for opening remarks, I would like to turn the call over to the Chairman, Mr. James Stroud. Please go ahead, sir.

Good morning, and welcome to Capital Senior Living's First Quarter 2004 Earnings Call. We are pleased at the progress in the first quarter. The company continues to execute on its business plan, of higher occupancy rates on its communities, and lease up, an increase in rental rates, and retirement of debt. The company's strategy of owning communities versus just managing communities continues to drive positive results for total revenues, while achieving operating margins in the mid 40% range. The acquisition of the 12 Triad communities last July provides a platform for continued growth in total revenues, adjusted EBITDA, and cash earnings. The company also strengthened its corporate governance, by adding Ms. Jill Krueger to the board of directors and audit committee. Ms. Krueger currently serves as president and CEO of Health Resources Alliance, Inc. Prior to joining HRA, Ms. Krueger was a partner at KPMG, responsible for overseeing the firm's national long-term care and retirement housing practice.

For further comment on the first quarter, I now introduce Larry Cohen, CEO.

Thanks, Jim, and good morning. We are pleased to report our financial and operating results for the first quarter of 2004. Capital Senior Living continues to build upon the accomplishments achieved in 2003. The initiatives we implemented last year have resulted in the continued momentum in the lease-up rates of our Triad communities, which is one of our key operating metrics, and provides the basis for enhanced organic growth. Occupancy rates at our Triad communities increased to 89% from 75% in the first quarter of last year. Our offering of $34.5m of common stock in January, 2004, has enabled us to retire our debts while increasing our liquidity. And most importantly, we can now complement our organic growth opportunities with future growth through joint venture investments in and acquisitions of other senior living communities.

Our long-term strategy of providing quality, affordable senior living services with a focus on private pay, independent living communities, has been our focal point since we first began operating Senior Living Properties in 1990. This approach has served us well throughout the years, including the recent turbulent times in our industry. We continue to achieve high occupancy rates and operating margins. Our 2004 business plan calls for increasing revenues, maintaining our strategy of completing the lease-up of our recently built communities, sustaining high occupancy rates in our stabilized properties, and ensuring our operating margins remain above industry averages. Once again, with the capable leadership of our senior management team, which has nearly 150 years of combined industry experience, our accomplished regional operations and marketing vice presidents, and our skilled on-site staff, we successfully accomplished each of these critical objectives during the quarter.

For the first quarter, we reported a net loss of $2m, or 9 cents per diluted share. Cash earnings, defined as net income plus depreciation and amortization, was $900,000, or four cents per diluted share. The most significant action we took in 2003 was the acquisition of the remaining interests in Triad's Two through Five. Collectively, these entities owned 12 communities, developed and managed by Capital Senior Living, with combined resident capacity of [160,070] residents, 95% of whom live in independent living. In addition, the seven communities in Triad One are now consolidated, due to the adoption of FASB interpretation number 46.

Our operating results for the first quarter reflect the fact that the majority of the Triad communities are still in lease-up and haven't yet stabilized. In addition, the company wrote off nearly $300,000 of unamortized loan costs in the first quarter in connection with the early retirement of debt. On a comparable basis, excluding the results of Triad One and the write-off of unamortized loan costs, the loss from operations was reduced in the first quarter to four cents per diluted share from eight cents per diluted share in the fourth quarter of 2003. Our Triad communities attained considerable improvement during the quarter in both their revenues and net operating income. These 19 properties increased their lease-up rate to 89% as of March 31st, a significant increase from the first quarter, 2003, rate of 75%. Average monthly revenue per occupied unit in the Triad communities increased 4%, to $1,763. The collective revenues at these 19 communities increased 19%, to $9.9m in the first quarter of 2004, compared to $8.3m in the first quarter of 2003. The operating leverage existing in the Triad communities is reflected in their collective income growth of 103% over the same period in 2003. Resident revenues in all 42 communities that we own and/or manage increased by 8%, to approximately $32m in the first quarter of 2004.

Occupancies at our owned and/or managed stabilized communities averaged 88% during the quarter. Average monthly revenue per occupied unit at our owned, mature properties increased 9%, to $2,323. While our gross move-in rates improved compared to the same quarter last year, we saw the effects of higher than usual attrition rates. Attrition is typically highest during the first quarter, and we expect to see the attrition levels fall as we move into what are typically the best months for leasing. Operating margins at our stabilized communities averaged 46% for the quarter.

During the first quarter, we continued to improve and simplify our balance sheet. We were able to repay approximately $17.4m in debt, including approximately $13.7m from the proceeds of our recent stock offering. As our Triad Communities complete their lease-up, and as occupancies improve at our mature communities, we expect to see significant increases in our revenues and cash flows, providing the basis for enhanced organic growth.

With completion of our stock offering in January, we are also well-positioned to grow externally, through joint venture investments in and acquisitions of other senior living communities.

I would now like to introduce Ralph Beattie, our CFO, to review the company's financial results

Thanks, Larry, and good morning. I hope everyone has had a chance to see the press release, which was distributed last night. In the next few minutes, I'm going to review and expand upon highlights of our financial results for the first quarter of the 2004 fiscal year. By the way, if you need a copy of our press release, it has been posted on our corporate website, at www.CapitalSenior.com.

The company reported revenues of $22.6m for the first quarter of 2004, compared to revenues of $14.5m for the corresponding period in 2003, an increase of approximately $8.1m or 56.2%. The 2004 revenues included 12 communities in Triads Two through Five, that were acquired in the third quarter of 2003, as well as seven communities in Triad One, that are consolidated in first quarter operations, due to the adoption on December 31st, 2003, of FASB interpretation number 46, entitled ``Consolidation of Variable Interest Entities.'' Adjusted EBITDA, a non-GAAP term which we define as income from operations, plus depreciation and amortization, for the first quarter of 2004 was $4.1m, equal to the first quarter of 2003. Higher depreciation expense from the addition of the 19 Triad communities was offset by reduced income from operations, as most of these communities have not yet reached break-even.

Interest expense, net of interest income, was nearly $3m higher in the first quarter of 2004, compared to the first quarter of 2003, as the company consolidated the debt on 19 Triad communities and ceased booking interest income on the advances to those communities during the lease-up phase. The company reported a net loss of $2m in the first quarter of 2004, equivalent to a loss of 9 cents per diluted share. Of the $2m loss, approximately $0.9m, or 4 cents per diluted share, is attributable to the consolidation of the seven Triad One communities under FIN 46. In addition, the company wrote off nearly $0.3m of unamortized loan costs in the first quarter of 2004, due to the early retirement of debt. On a comparable basis, excluding the results of Triad One from the first quarter of 2004, and the write off of the unamortized loan costs, the loss from operations was reduced from approximately 8 cents per diluted share in the fourth quarter of 2003 to approximately 4 cents per diluted share in the first quarter of 2004. The company generated cash earnings, defined as net income plus depreciation and amortization, of $0.9m in the first quarter of 2004, equivalent to 4 cents per diluted share.

The company had total debt of $261.7m on March 31st, 2004, at a blended average borrowing rate of 5.25%. Of the $261.7m of debt, approximately $70m or 27% of the total, is at fixed interest rates, averaging 7.7%, and approximately $192m, or 73% of the debt, is variable, at an average rate of 4.3%. The variable rate debt of $192m includes approximately $51m of debt with floors on the base rate that are well above current rates. Consequently, we have about $141m of debt that is sensitive to changes in short-term rates.

As of March 31st, 2004, the company had $28.9m of cash, cash equivalents, and restricted cash, and $153.4m in shareholder's equity, equivalent to nearly $6 per share.

On January 29th, 2004, the company announced a public offering of 5 million shares of common stock, at a price of $6 per share. Net proceeds to the company were approximately $27.9m. The underwriters subsequently exercised their option to purchase an additional 750,000 shares of common stock, at a price of $6 per share. Net proceeds to the company from the underwriter's exercise at the over-allotment option were approximately $4.2m. The company used approximately $13.7m of the net proceeds to retire debt with an interest rate of 9%, which would have matured on October 15th, 2004. The company intends to use the remainder of the net proceeds, approximately $18.4m, to invest directly or indirectly in senior housing communities, for working capital, and for other general corporate purposes.

Amy, at this time, we'd like to open the call to questions.

[Operator Instructions] We will take our first question from Howard Feingold with Raymond James and Associates. Go ahead, please.

Thank you. On your short-term debt, it's 100-- I believe you said $147m, which is sensitive to interest rates, are you currently doing anything to either lengthen those maturities or to hedge future interest rates on that?

Howard, we've looked at hedging strategies in the past, and we do have a few derivatives in place, but at the present time, while we're following interest rates closely and studying the situation, we feel our best course in the immediate term is just to continue to enjoy the benefit of the low interest rate environment. We have factored in some interest rate increases into our financial forecasts for this year, in our budgets. We are expecting those rates to increase, but we haven't put in any hedging strategies over and above what we've had in place for some time.

OK, I don't know if you can answer this directly, or not -- given where you ended the quarter in terms of occupancy, I assume that obviously the average occupancy during the quarter was lower than your ending occupancy. Given the current occupancy and given an assumption of constant expense ratios, at what point would you see yourselves reporting actual numbers in the black?

Well, if you look at the Triad Communities, which leased up to about 89% in this quarter, and again, every property would be different, but typically the stabilized, break-even levels would be over 90% for the Triads. On the mature properties, even at 88%, they are positive, and cash flowing positively. So, as we look at the occupancies improve, we will see- obviously, we've already had positive cash earnings, we see those cash earnings grow. But the important metric that we look at is the occupancy levels on the newly constructed properties, and once they stabilize, which is typically over 90%, those properties will typically be positive cash flow.

OK, thank you.

And our next question comes from Bill Gibson with Nollenberger Capital. Go ahead, please.

Yeah, just for me to understand, the-- are the Triad properties not in the stabilized properties, or any of them in the stabilized properties at this point?

Hi, Bill. Actually, for this quarter, we have, I'll tell you exactly how many in one second -- I believe there about half a dozen of the Triad properties in the stabilized properties.

OK.

Actually, there are eight. In fact, I'll tell you, of 19 properties, eight are stabilized, six are between 85% and 89% -- actually, three are 89%, and two are in the low to mid 80s, and three are still in the 70s.

OK. So they really, when we break it out this way, they come into various categories?

Yes, they do. But if you look at our stabilized properties, there are actually 24 communities this quarter which are stabilized, including the eight Triads. We have 14 properties in lease-up, and we also have four expansions that are also being released. These are recently completed expansions, on a number of properties, adding different levels of care, which are also re-leasing.

OK, good. No, that helps. And to follow-up on the-- I think it was Howard's question, maybe a little bit differently, on a adjusted basis, I know that the loss from operations was reduced to, you know, 4 cents in the quarter from 8 cents in the fourth quarter. At what point do we reach break-even, or do we expect to see that this year?

I think as we look at this year, based on the lease-up rates that we predict, there still might be-- of course, depreciation expenses, a slight negative on EPS, but obviously we'll see cash earnings continue to grow, and income from operations, EBITDA, improve dramatically.

So really, it sounds like we may not see that this year, then? Is that what I'm hearing?

Yes, if you look at--

--I look at depreciation in your case as a real expense.

--looking at-- to the full year, for the full year, we would expect that, and primarily because of depreciation expenses and amortization, that we would not have a positive EPS for the year, but clearly we'll see continued growth in EBITDA and cash earnings.

Good. No, I appreciate that. And one last question, and it'd be just for me, understanding the accounting on the interest expense. I understand the consolidating Triad. What was that other thing you mentioned? You stopped booking interest income, or what was that?

Bill, what we were referring to was prior to the consolidation, we were actually accruing interest income on advances we made to those Triad entities.

Oh, OK, interest income on advances?

Right, so we actually had interest income as part of our reported EPS, and due to the consolidation, we no longer book interest income, since we own now 12 of those communities and we consolidate the other seven, under FIN 46.

Good. No, thanks.

We will take our next question fro Austin Lewis with Puglisi. Go ahead, please.

Yeah, hey, guys. Could you talk a little bit, I mean, more about the cash earnings and the EBITDA and how you expect that to kind of trend this year? I know you said you expect it to increase dramatically, but could you kind of give a little more color on that?

Well-- hi, Austin, it's Larry.

Hey, Larry.

If you look at-- in fact, if you look at our slide presentation, which is on our website, we talk about some of the organic growth, and we break it out between the 24 properties, half of which were the Triads, half of which were mature properties, and if I recall, we're looking at-- to get to 90% in all those 24 properties, I believe, generates about $12m of revenue to the company, over $12m of additional revenue.

OK, so to get to 90% in the ones that you aren't currently at 90% in, just--

Having everything averaging-- exactly -- having everything averaging at 90.

Yeah.

Or actually bringing everything up to 90. You're exactly right. Getting the properties which are not yet at 90 up to 90%, would generate, off the fourth quarter revenue numbers, that would generate about-- over $12m of additional revenue.

On a yearly basis?

I'm sorry?

On a yearly basis?

Yes, on a yearly basis.

OK.

And again, the operating leverage here is that as we complete the lease-up, significantly all of those revenues will drop to the bottom line and to EBITDA.

Um-hmm.

Because there aren't that many incremental costs.

Right.

So, you know, that, I think, gives you some magnitude of the organic growth potential by getting the 12 Triad communities, or actually the Triad communities which are not yet at 90% or higher. And then we have the four expansions, which are continuing to lease up, and then the stabilized properties, back up to 90%.

Now the four expansions -- where are the-- what are the occupancies on those?

Those occupancies, the lowest occupancy, which is [Cedric Plaza], which was completed last year, we closed down, basically, most of the independent living units to move assisted living residents into a new wing, built a new entrance, new dining room, refurbished or released that, that property ended the quarter at about 75% occupancy.

OK.

And then you look at the Canton Regency and Town Center expansions, they're getting very close to stabilization. And then the last is Cottonwood, which is actually-- ended the quarter at 85% but leased to 90, so we're making strong progress on the expansion properties as well.

OK. So really, this-- this quarter that you just reported should kind of be, you know, probably your worst quarter of the year.

I would think so. We expect improvement-- and another thing, Austin, which is important to note, that I mentioned in my comments - our movement rates for the quarter, on our stabilized properties averaged about 6.5 residents a month, which is very strong and very good. [When] we do our projections and look at our budgets, we're budgeting about, you know, a net, you know, 2.5, 3 per month. What we did experience this quarter was unusually high attrition rates. And again, if I look at April, look at, you know, kind of where things look for May, you know, we're optimistic that we've got some good momentum out there. We actually had, as you can appreciate, a very tough winter, weather-wise. We always have flu and other issues with health in the winter months as well, and typically we start to see significant improvements both in the lease-up, and hopefully we'll start to see the attrition get back to more traditional levels.

Uh-huh. Can you talk about pricing, what's kind of happening in the pricing?

I mentioned earlier-- it's interesting. If you look year over year, on the mature properties that we own, the pricing, the average monthly occupied rates increased 9% year over year, with our mature properties averaging about $2,323. Our Triads, all 19 of them, their average monthly rate increased 4%, to $1,763. Year over year, and again, as we stabilize those properties, we expect to start closing that gap between the average monthly rates at the Triad communities and the average monthly rates for our mature communities, and that goes into that calculation as well. When we looked at the Triads for purposes of this revenue contribution, we assumed that we get the Triads to $1,850 per month.

Sure.

And that was up from $1,700. We now are at $1,763. So if you look at the slide -- I believe that the slide assumes an average Triad rate of $1,700, so we're making good progress, closing the gap to the $1,850. And again, as we continue to be able to increase rents and again, one of the factors of attrition is that as you do have attrition, we do have the ability to move the rates a little more quickly, because we can then move those vacant units to market and move those rates higher.

OK. So what would that-- was that in that $12m additional?

It is.

OK.

In fact, if you look, the average Triad rent per occupied unit last March was $1,697, and as I mentioned this year, the same average monthly revenue per occupied unit is $1,763.

All right. Can you talk about the landscape a little bit, as far as, you know, 9% pricing growth is pretty interesting. I mean, it seems like in the past, that that's kind of carried on at a two- to three-year phenomenon. Do you kind of see that happening again? Is there a lot of building going on right now? Is there anything that would cause pricing maybe not to continue to grow at a pretty healthy rate over the next two to three years?

I think a couple of things will work in our favor, Austin. Number one, as you mentioned, construction is down. The 2004 surveys are being tallied by the American Seniors Housing Association right now, but you know, if you look at the results from last year's tally, total construction was still off about 60% from the peak back in 1999. I think total units were 27,000 last year, with about 35% of that being seniors apartments as opposed to more traditional independent and assisted living communities. And what's interesting is that one phenomena we're seeing is that cap rates are starting to drift downward, so we do see that the values of communities are improving, which is positive, as you look at kind of valuation of us as a public company and the industry.

The other phenomenon is that a prices start to increase on the assets, that will drive higher pricing.

Right.

So I think that will drive higher market rents, which obviously we-- you know, we're very, very sensitive to looking at the market, looking at opportunities. And another interesting phenomenon over the last 10 years, and again, in our slide show, we have this slide showing for the last 10 years, independent living and assisted living revenues grew by about 4% or 5% year over year, in different economic times. So, there is some pricing sensitivity there.

The other phenomenon is that, you know, many of our residents are on fixed income, so if interest rates do start to rise, they also will see their monthly incomes rise.

Um-hmm. So it'll be more affordable for them?

I think so.

OK, thanks a lot.

Good talking to you. Thank you, Austin.

[Operator Instructions] We will take our next question from Frank Morgan with Jefferies & Company. Go ahead, please.

Good morning.

Hi.

I'm looking at your results here; [it really looked] like a good, solid quarter, and obviously getting the Triads consolidated, the final piece of that consolidated, with your completion of your equity offering, your capital structure obviously is very improved here. And I'm curious now, from this point, it looks like the trends toward-- you know, you're clearly moving in the direction of profitability. And I'm just curious about your-- how you feel about your infrastructure to grow the business, now that all these things seem to be all in order, your ability to grow and add new business beyond this, since most of your existing base of business seems to be moving in the right direction. What do you feel are the opportunities out there today for external growth and how do you feel-- how far do you think you can lever your infrastructure to continue to grow the business?

And then the second question was just on that whole concept of the attrition rate. Obviously, there is some good to it, and I think that's helping you get the higher, 9% rates, but did you notice it in any part of the country? Did you notice it more in your mature portfolio, your Triad, or was a part of the part of the country where you saw higher levels of attrition? Thank you.

Frank, I'll answer each of those separately. First of all, as far as infrastructure, we, in fact, went through a reorganization at the end of the year, where we now have teams of our regional operating centers, combining regional operating vice presidents with regional marketing vice presidents, and in fact, it's interesting, because we even have a little competition going on with a super bonus at the end of the year, based on each team's results versus the budget. But if you look at our infrastructure, for our 42 communities, each team is handling about eight communities. There's the capacity to handle up to about 12 communities per team, so you know, we could go out now and acquire approximately 15-plus communities without having to add to the infrastructure. So we have a fairly good structure in place to absorb some immediate growth.

As you look at the attrition, there really has not been anything that really stands out, vis a vis geography. We do see that our sustained communities are having higher attrition than our Waterford and Wellingtons. And again, I think a part of the reason for that is that these are newer properties, the residents, again, have been with us for a shorter timeframe. We still have residents in many of our own communities that have been original residents, going back 10, 15 years. So we're starting to see some attrition there. But if you look at the, for example, in March, we saw the attrition at our sustained properties approaching almost 6 per month versus 2.6 per month in the March, 2003, and in our Waterfords, the attrition was running about 3 per month, which is consistent with 2003. So we're see those effects. And that may, as you said, have some bearing on this 9% increase in rents, as we see the effects of attrition. So, you know, we're seeing that occur.

And as far as the landscape going forward, we are seeing transactions hit the market that are actually attractive. I think one of the other benefits of a change of interest rates is that there are many properties that have been held on to by owners, particularly properties in lease-up, because of low rates, and I think we'll start to see more product come to the market. In talking to brokers, there are a number of portfolios they're expecting to come out as well, so we're encouraged that we'll start to see some good deal flow, with good quality performing assets that we'd like to acquire, with our joint venture partner.

Any data points you could share with us since the end of the quarter with regard to move-in rates and attrition, say, for the month of April or so far -- I guess it's too early for May, but maybe in April?

You know, looking at April, I believe our occupancies were up about 1%, so I think we're seeing some good trends there in April, netting out to a obviously a nice improvement there, combining both good movement rates with some slower attrition.

Thank you.

Thank you.

Our next question comes from Richard Lubman, a private investor. Go ahead, please.

I just wanted to follow on a tad on the-- your chances for, you know, extending your growth, which I think is kind of critical for you, in order to be able to absorb your variable expenses, or your fixed expenses a little better. First off, what's the chances of being able to do new builds of properties, and what's the tenor or quality of financing that's available for that, nowadays?

Hi Richard, it's Larry Cohen. There's still quite a bit of constraint of capital for development. Most of the lenders that were providing construction financing are not in the business today, and those that are, are requiring higher equity and have increased their spread on the rates, so it becomes difficult to find that. There is a, still, not-for-profit construction, but those are typically very large campuses, continuing care retirement communities, that have a full continuum. And you know, part of our business that we do see is that we are continuing discussions with some institutions and not-for-profits, where we believe we can be a developer, primarily a fee developer, where we can earn fees and long-term management contracts for the building and leasing those. But I don't expect to see much change in the landscape, particularly on the for-profit side, for senior housing development.

All right. With the not-for-profit, would that be like, say, joint venturing with a hospital and maybe getting some tax-exempt financing?

Exactly right.

OK.

That's exactly what we do, and what we do there is typically, we may have a very minor contribution, but typically, we would joint venture say, with a hospital or another not-for-profit and then we would look to earn development fees as well as long-term management contracts.

All right, certainly getting the development fees back into the earnings flow would be lovely. It would be a nice change.

[inaudible]

Now, with Triad One, you still- you're consolidated on the balance sheet, but you haven't actually taken ownership of the properties. Can you give me a sense as to when you'd be likely to exercise the options on that?

Yes, Richard. We probably will exercise our options this year. We have a purchase option with Lehman Brothers, which is an investor in Triad One, and we are actually now talking to different financing sources and we're looking at that right now.

OK. And just turning back to the new builder, or any possibility of getting new construction going, your Blackstone venture, does any of that-- do the-- is there an accessible rate of return on new builds, using the Blackstone money, or is it just totally off- out of the picture at this stage?

Hi, Richard, Jim Stroud. Blackstone's development-- they really are designed to acquire existing projects versus development. So that-- that is a model that they typically do not invest in. What we have seen, as Larry mentioned, our calls from hospitals as well as from the not-for-profits has increased dramatically. Keeping in mind that over the past 20 years, the not-for-profit industry, which would include the hospitals as well as religious organizations and standard 501c-3s have built out about $500m and that portfolio now is aged. So they're focused on an expansion of their existing portfolio, as well as replacement, and that's an area that, you know, we've received a number of calls on. We obviously have experience in that area. And that's-- that will be an area to watch, as those opportunities increase.

OK. Is there a chance to get management contracts on existing properties as well with that?

Yes, there is. The tax law changed about three years ago to allow long-term management contracts, which go out to up to 15 years. The standard in that not-for-profit industry is generally a management contract of three to five years, and that's usually what our expertise is, is if we're going to be involved in the development of it, we also can bring in our operational expertise during that redevelopment or new development phase, which is critical for the success of the project. So those two go in tandem.

OK. I guess that does it for me. Thanks much.

Thank you.

Thank you, Richard.

And our next question comes from Russ Silvestri with Skiritai Capital. Go ahead, please.

Thank you. Two questions. First, why the significant delta between the Triad properties and the owned properties that are outside of Triad? And second, on the attrition side, I mean, where are these people going?

I'll answer. Hi, Richard-- or hi, Russ, rather, how are you?

Fine, thanks.

As far as the delta, it's a fact that on the rental rates, the Triad communities opened into a very competitive market. There were about 275,000 units that came on line in the last seven years. Most of those opened between 1999 and 2001, and our Triads opened, again, between '99 and 2002. So, what we found is that, in the competitive markets, even though they're predominantly independent living, even some of the assisted living properties that were opening were dropping their rents to be competitive, so that's the delta. The good news is that as these properties stabilized and there was very little construction going on, there is the opportunity for this organic growth to start to get those rents back up to more stable levels, and we saw this in other cycles. This is not that different than when we took over a portfolio almost ten years ago that was built between 1989 and 1992, in that very difficult economic time, and we saw tremendous improvement in rents and cash flows and virtually a-- a doubling of the value of that portfolio over a four-year period, so you know, we've seen it in the past, and we expect to see it again.

I'm sorry, the second question?

Kind of turning back into the attrition, in the sustained-- I mean, where are these people going? I mean, are they all dying or what's happening?

Yeah, I mean, you're looking mostly death or higher levels of care. But what's happened is, the average age of our residents has been 84, 85, so what we're finding is that particularly residents in our sustained properties, many have been with us for many, many years, unfortunately are moving on, so we do see that. Very rarely is it for choice, by choice. As I said, one of the things that we have done and continue to do is improve our wellness programs and fitness programs. We do have, in many of our properties, home health care agencies that we will rent out an office to. We are expanding that as well, so that there is the ability to provide programs that we think will keep renters independent longer. And that's a big focus of us, this year. But what we're finding is that, through natural causes, we typically are finding residents are moving out.

Yep. Russ, Jim Stroud. The percentage of our residents that pass away is generally about 50%, and that, as Larry cited, because the age-- average age is 84 to 85, so they're older residents. And then the balance, the remaining 50% that move out, generally half or 60% of that has been to higher levels of care. Higher levels of care is generally a hospital, and then they pass away within six months. So figuratively, you could say within a six-month time period, either individuals leaving or within that six months, 75% of that is due to death.

Gotcha. And just the one last thing -- in terms of the Triad, the quality of the property versus the, you know, the Waterford and the Wellington? I mean, are they kind of the same property? Do the rooms look the same? The same square footage, and all that kind of good stuff?

If you look at the portfolio, they're basically three models that we have, and we have the first generation of properties that opened in 1999. They were completely retooled, so Triad One, the properties looked very similar. There were some modifications made in Triad Two, and we completely revamped for Triads Three through Five. And then we have another model that is an independent living and an assisted living property. If you look at the Triads, there are 17 properties with independent living, of which two have independent and assisted, and we have two expansions of the 19 which are on campuses, where we have other levels of care. So if you look at the 17 stand alone senior housing properties, which are not on other campuses, 15 of those are independent living and then two have independent living with assisted living.

I see. OK. Thank you.

Thank you.

Our next question comes from Greg MacOsko with Ward Abbott. Go ahead, please.

Yes, hi. Thank you. Just so I understand this- the terms -- when you talk about the 40-- the 46% operating margin on independent and assisted communities, how many units are we talking about, does that include, in that independent and assisted?

That is about 4,100 units.

That's 4,100 units, and that would-- I would-- and that would include the uncon-- that would not include the managed properties, the unconsolidated properties?

Owned and/or managed. When we look at the margins, we look at the owned and/or managed properties, which are stable, and that includes our mature grouping as well as those Waterford, those Triad properties, that have reached stabilization. Those are all included in there. So if you look at it, there's actually-- actually it's about a little higher. The actual unit count is about 4,300 units, which we have a capacity for nearly 5,000 residents.

OK. And then-- then I assume that the occupancy on that group was the 88% you mentioned in the-- the average occupancy would be--

That is correct. That is correct. That is also the average occupancy, yes.

On those properties? OK. And then- and again- and then finally, the remaining number of properties would be those Triads that you just acquired?

Well, of those Triads that we have acquired, there are basically ten in lease-up, and then we have three Spring Meadow communities that we manage that are also in lease-up. So if you look at our portfolio, we have 24 stabilized communities that go into both the average occupancy as well as the margin.

Um-hmm.

And another 14 properties in lease up, ten of which are in the Triad entities and-- I'm sorry, 11 in Triad, 3 are the Spring Meadow properties that have not yet stabilized, and then we have the four expansion properties, and that's both owned and/or managed.

And so the remaining properties that are outside this 4,300, that's- I would assume, that's approximately 2,500 or so, additional units?

That's correct. Yeah, that's about right.

And that 2,500 or so would be, I would assume, at that $1,763 you're talking about, on average?

Actually, no. If you look at that-- the Triad communities are $1,763.

Yes.

In fact, if you wanted to look at it that way, on the properties which have not yet stabilized in the Triads, generally those properties average rents are going to be a little lower, because if you look at Triad One, the average revenue per occupied unit was $1,819, and that's pretty stable. Looking at the others, the rate would come down, probably around $50 or so, on average, so my guess is that other Triads still in lease-up would be closer to $1,700, low $1,700, as opposed to the $1,763 number. If you look at the Spring Meadow properties, which are, again, in markets-- higher land costs, more affluent markets, those properties average actually, and they have more assisted living, those rents actually average $3,200 per occupied unit per month.

Wow, that's nice.

Yeah, so you're looking at, for example, in Summit, New Jersey, all assisted living, average monthly rent is $4,497.

And then on those-- again, on those non-stabilized properties, we're talking something in the 60% to 70% operating margin?

In fact, that's-- yes. And in fact, if you look at the actual margins, that's about right, for the-- for the properties not stabilized, the margins would not yet be at 60% or 70%. Those properties are typically running around 30% margins right now, 25% to 30% margins.

25 to 30 now.

And then as they stabilize, we're starting to see-- in fact, even the Triad properties, which are now stable, are in the 40s.

OK. All right. And the management fee on the managed properties is what, 5%, 6%?

--percent of gross revenues. We do have incentive fees in the Spring Meadows properties and we have earned those incentives as well.

So that's 6%, altogether?

All told, about that, yes.

OK.

Fees and management fees, so it's about 6-- maybe a little greater than 6%. Of course, we get an asset management fee, as well as a management fee.

OK, thank you very much.

Thank you.

[Operator Instructions] We will take a follow-up from Austin Lewis with Puglisi Company. Go ahead, please.

Yeah, I was just going to ask about the Blackstone situation, but most of it, I guess, has kind of been answered. But I was just wondering if you could elaborate into, you know, would these-- these deals be similar to the ones you've done in the past, or are they going to be different in any way, and just start off with that, I guess.

Austin, first of all, Blackstone celebrated last week the closing of their fourth equity fund. They actually raised over $2.2b with equity for investment in real estate assets. We are very, very actively working with Blackstone, looking for opportunities for co-investment. The structure has not changed. Again, it's-- it's a structure where we will provide 10% of the equity, Blackstone will provide 90% of the equity. The assets that we're looking to acquire in the venture will typically qualify for Fannie Mae or Freddie Mac financing, which today, on a fixed rate basis, would average 150 basis points over the ten-year Treasury. We would get a 5% management fee, as well as sharing [PERI] passthrough with Blackstone, 10% to us, 90% to Blackstone. And then once the properties generate-- if they generate over a 20% internal rate of return on a leveraged basis, we get a [promote]. So the structure has not changed, so, you know, the exciting part is that for virtually every dollar we invest in that structure, we return in the first year, between our return on our equity, as well as our management fee, about 80 cents on the dollar.

OK. How-- I mean, is there any- obviously these deals are kind of, you know, here and there, and you've got certain parameters you're using, but is there any number of deals you're kind of targeting, or you know, I mean, it seems like pretty good economics on that. You would do as many as you could.

And in fact, exact-- we would do as many as we could. And as I said, what we're seeing now is some portfolios coming out. Again, we're looking at- you know, single assets or assets-- three asset deals. We're expecting a ten-asset deal to come along. So, you know, we're looking at-- and we're looking at companies. So, you know, we are looking across the board. We're fortunate, because Blackstone has been an excellent partner. We've got a great acquisitions staff there, a very highly trained professionals working with us, in underwriting assets, as well as their own resources for lenders and other owners that may have some senior housing properties.

OK, great. Thanks a lot.

Thank you.

Mr. Stroud, we have no further questions. I'll turn the conference back to you for additional or closing remarks.

On behalf of the company and its personnel, we appreciate your interest in the company and have a good day. Thank you.

Thank you, and that does conclude today's conference. We appreciate your participation. You may now disconnect.