Sonida Senior Living Inc (SNDA) 2005 Q4 法說會逐字稿

Good day and welcome to the Capital Senior Living fourth quarter 2005 earnings release conference call. Today's conference is being recorded. Forward-looking statements made by -- any forward-looking statements made by management in this conference call are subject to certain risks and uncertainties that could cause results to differ materially, including, but not without limitation to the Company's ability to find suitable acquisition properties at favorable terms, financing, licensing, business conditions, risks of downturns and economic conditions, generally satisfaction of closing conditions such as those pertaining to licensure, availability of insurance at commercially reasonable rates, and charges and accounting principles and interpretations among others, and others risks and factors identified from time to time in the Company's reports filed with the Securities and Exchange Commission.

At this time I would like to turn the call over to Mr. James Stroud. Please go ahead, sir.

Good morning. And welcome to Capital Senior Living Corporation's fourth quarter 2005 earnings call. In the fourth quarter the Company continued to focus on operational fundamentals on its existing communities, achieving gains from its joint venture and sale leaseback strategies, and informing new joint ventures for current and future revenue growth.

First, regarding focusing on operating fundamentals, the average physical occupancy on stabilized communities increased to 92% in the fourth quarter 2005 compared to 90% for the fourth quarter 2004. This occupancy increase, plus higher rents, achieved a revenue increase of 7.5% for fourth quarter '05 over the comparable period for 2004.

Expense management, coupled with this increase, resulted in an operating income increase of 15.3% compared to the prior comparable period.

Second, gains from joint venture sales with Blackstone and sale leaseback transactions with Ventas resulted in gains that leveraged the Company's operating focus while generating cash. The Company intends to use a portion of these cash proceeds to pay down debt and refinance variable rate debt.

Third, current and future growth potential was achieved by the formation of the GE Healthcare joint venture and acquisition of four communities, with a fifth community to be acquired, subject to lender's approval of debt assumption.

This joint venture structure creates current management fee income, income from operations, and future incentives based on sale proceeds. These accomplishments have forged a solid platform for growth as the Company continues to execute on its business plan. For further information I now introduced Larry Cohen, Chief Executive Officer.

Good morning. We are pleased to report our results for the fourth quarter and full year 2005. This was a year of significant accomplishments for Capital Senior Living that has strengthened our capital structure, resulted in improved operating results, and provided us with greater financial flexibility. These improvements are converging with better industry fundamentals and an attractive acquisitions market to form a solid platform for future growth.

I would like to review our financial highlights for the fourth quarter and full year 2005. Full year revenues increased 13% from 2004 to $105.2 million. Fourth quarter revenues increased 32% to $31.5 million compared to the fourth quarter of 2004. Full year adjusted EBITDAR, which is defined as income from operations plus depreciation and amortization and facility lease expense increased 39% to $26.1 million versus the year ago period.

Fourth quarter adjusted EBITDAR increased approximately 66% to $8.4 million versus fourth quarter of 2004.

Full year income from operations increased approximately 69% from 2004 to $11.4 million. And fourth quarter income from operations increased 59% to $3.2 million from the year ago period. There were 3 major initiatives that created the platform for our success in 2005 and that are moving us forward in 2006.

First is maximizing the value of our communities. We ended 2005 with a 92% occupancy rate in our stabilized communities compared to 90% in the fourth quarter of 2004, enabling us to capitalize on the operating leverage in these communities.

In the fourth quarter, same-store revenues at all communities under management, which include revenues generated by our consolidated communities, communities owned in joint ventures, and communities owned by third parties and managed by the Company increased 7.5%, and operating income increased 15.3%.

For the full year same-store revenues increased 6.3% to $156.3 million, and operating income improved 16%. Operating margins before property taxes, insurance and management fees at our stabilized communities improved to 47% in the fourth quarter, as compared to 45% the same period in the prior year.

The number of communities we consolidated in the fourth quarter increased to 36 from 29 a year earlier. Financial occupancies at these communities increased to 89%, compared to 85.9% in the fourth quarter 2004, and average monthly rents increased 3.8% to $2,130 during the quarter.

Operating margins at our consolidated communities improved to 41% during the fourth quarter, compared to 37% in the prior year.

Seventeen of our consolidated properties are our newer Waterford and Wellington communities, which continued to improve throughout 2005. In the fourth quarter these communities enjoyed a 90.8% financial occupancy compared to 86.7% in the fourth quarter of 2004, and average monthly rents grew 4.1% to $1,835. These improvements generated a 9% increase in revenues to $10.6 million for the quarter, and operating margins improved to 42% from 38% a year earlier.

We intend to further enhance the value of our communities through increasing the capacity for assisted living or supportive services at several communities and through traditional ancillary services.

The second initiative that we implemented in 2005 involves sale leaseback transactions. In the fourth quarter we completed an approximate $85 million sale leaseback transaction with Ventas of six communities owned by our joint venture with affiliates of Blackstone Real Estate Advisors. We recorded a gain of approximately $4 million that will be amortized over ten years, and receive cash proceeds of more than $6.1 million.

During the quarter we leased a seventh community from Ventas, which Ventas purchased from a third party for $19.5 million.

In February 2006 we announced a sale leaseback transaction with Ventas, which is expected to result in a gain of approximately $14.5 million that will be recognized over ten years, the retirement of $16.2 million of variable rate debt, and cash proceeds of approximately $12.4 million.

And this morning we announced a three community sale leaseback transaction that is expected to result in the gain of approximately $13 million amortized over ten years, the assumption of $29.6 million of debt with a fixed interest rate of 8.2%, and cash proceeds of approximately $23.5 million.

These sale leaseback transactions are immediately is the accretive and will have a positive impact on earnings for ten years. They will also eliminate more than $45 million of debt from our balance sheet, and provide cash for additional debt repayment and future investment opportunities.

The third initiative that we began in 2005 involved improving our debt. We completed the refinancing with GMAC in July 2005 that refinanced $34 million of variable rate debt with $39 million of ten-year mortgages with fixed interest rates of 5.46%. We plan to refinance nearly all our variable rate debt during the second quarter at fixed interest rates that are about 200 basis points below current levels.

For 2006 our business plan is focused on providing significant income and asset growth potential, maximizing our return on invested capital, and continuing to strengthen our balance sheet. The keystones of this plan are continuing to maximize the value of our communities, pursuing additional sale leaseback transactions, completing additional acquisitions through joint ventures, as well as REIT acquisitions and leasebacks, and increasing revenue through management and development fees from third parties.

We are looking forward to beginning development of two Ohio sites that we have owned since 1999 with a joint venture partner in the second half of this year. We are actively seeking additional sites primarily in strong barrier to entry markets for a limited number of additional development opportunities that would be developed with a joint venture partner.

Our successful track record as a proven operator of senior living communities has provided us with a strong platform for growth. And we're fortunate to continue to expand our joint venture and REIT relationships. I also want to thank all the members of the Capital Senior team for their diligent efforts and dedication in executing on our plans. As you can see of from the fourth quarter report and recent announcements, the activity level at Capital Senior Living is robust. And we look forward to achieving the potential facing us by realizing our long-term strategy and benefiting from positive industry trends.

I would now like to introduce Ralph Beattie, our Chief Financial Officer, to review the Company's financial results for the fourth quarter and full year 2005.

Good morning. I hope everyone has had a chance to see the two press releases which have been distributed in the last twenty-four hours. In the next few minutes I'm going to review and expand upon highlights of our financial results for the fourth quarter and the 2005 fiscal year. By the way, if you need copies of our press releases, they have them posted on our corporate website at www.CapitalSenior.com.

The Company reported revenues of $31.5 million for the fourth quarter of 2005, compared to revenues of $23.9 million for the corresponding period in 2004, an increase of approximately $7.6 million or 32%.

The number of consolidated communities increased from 29 in the fourth quarter of 2004 to 36 in the fourth quarter of 2005, as a result of consolidating seven communities, which released from Ventas in two separate transactions which closed in the quarter. Six of these communities were previously owned by a joint venture between the Company and Blackstone, and hence not consolidated. And the seventh was Georgetown Place, an additional community which Ventas acquired from a third party.

Financial occupancy of the consolidated portfolio increased by 3.1 percentage point year-over-year, and ended 2005 at 89%. The average monthly rent of this portfolio increased by $77 per month, or approximately 3.8%, and ended the year at $2,130 per occupied unit.

Revenues under management increased approximately 10% to $44 million in the fourth quarter of 2005, from $40 million in the fourth quarter of 2004. Revenues under management include revenues generated by the Company's consolidated communities, communities owned in joint ventures, and communities owned by third parties that are managed by the Company.

Operating expenses increased by $4.3 million in the fourth quarter of 2004. As a percentage of resident and healthcare revenues, operating expenses improved from 68.3% last year to 65% this year. This improvement was despite over $0.3 million in expenses for hurricane-related damage which occurred at two communities in the fourth quarter; one community in Boca Raton Florida, and one in Shreveport, Louisiana.

General and administrative expenses were $0.2 million lower in the fourth quarter of 2005 than in the fourth quarter of 2004, largely due to expenditures for Sarbanes-Oxley 404 compliance taking place earlier in the current year.

Approximately $0.1 million of general and administrative expense in the fourth quarter of 2005 was non-cash share-based compensation due to the Company's early adoption on July 1, 2005 of Statement of Financial Accounting Standards No. 123R.

General and administrative expense as a percentage of revenues under management were approximately 6.7% in the fourth quarter of 2005, compared to 7.8% in the fourth quarter of 2004.

Lease costs appear on our income statement for the first time. And lease costs for the quarter were approximately $2.1 million, reflecting an 8% lease rate on approximately $105 million of new leases with Ventas on seven communities.

Adjusted EBITDAR, defined as income from operations, plus appreciation, amortization, and facility lease expense for the fourth quarter of 2005 was approximately $8.4 million compared to $5.1 million in the fourth quarter of 2004.

The Company recognized a gain on sale of properties of approximately $0.1 million in the fourth quarter of 2005. This reflects the amortization of the approximate $4 million gain realized on the sale of six communities to Ventas, which had been owned by the Company's joint venture with Blackstone. This gain will be amortized over the initial ten-year term of the Company's lease with Ventas.

Interest expense, net of interest income, was $5 million in the fourth quarter of 2005, compared to $4 million in the fourth quarter of 2004. The increase is primarily due to higher rates on the Company's variable rate debt. The Company had total mortgage debt of $255 million on December 31, 2005. Approximately $174.2 million of debt, or 68% of the total, was sensitive to changes in short-term rates, and $80.8 million, or 32% of the total, was at fixed rates at the end of the quarter.

At December 31, 2005 the Company had interest rate caps in place of $150 million at the $174.2 million of variable rate debt. Variable interest rates on $150 million amount are capped at approximately 35 basis points over the present one month LIBOR rate. At the end of the fourth quarter the interest rate on the variable rate debt was approximately 7.4%, and the fixed-rate debt averaged 6.8%.

The Company is executing its strategy to convert additional variable rate debt to fixed interest rates. By generating cash through sale leaseback transactions, the Company intends to reduce its overall borrowings and fix the remaining debt at attractive rates. The successful execution of this strategic objective should reduce leverage, interest expense, and interest rate risk, as well as generating gains to the Company.

The Company reported a pre-tax loss of approximately $1.7 million in the fourth quarter of 2005, compared to a pre-tax loss of approximately $2.6 million in the fourth quarter of 2004. The pre-tax loss in the fourth quarter of 2005 includes approximately $0.5 million of expense for three items. Two of the Company's own communities sustained hurricane related damage of approximately $0.3 million. The treasury rate loss agreements resulted in approximately $0.1 million of expense in the quarter. And the early adoption of FAS 123R caused the Company to recognize approximately $0.1 million of compensation expense for non-cash share-based compensation.

If the Company's normal statutory tax rate were applied to the $1.2 million pre-tax loss for the quarter, the Company would have reported a loss of $0.03 per share.

KPMG was engaged by the Company as its independent auditors on June 21, 2005, and is now conducting its first audit of the consolidated financial statement. The Company is reviewing its provision for income taxes internally and with KPMG in their capacity as independent registered public accountants. As part of this review the Company is evaluating deferred tax assets and liabilities. Deferred income taxes reflect a net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes, and the amounts used for income tax purposes. Completion of this review is expected prior to the Company's filing of its Form 10-K, at which time the Company's provision for income taxes will be determined.

For the 2005 full year the Company generated revenues of $105.2 million, compared to revenues of $93.3 million in 2004, an increase of approximately $12 million, or 13%. Adjusted EBITDAR for 2005 was $26.1 million, an increase of approximately $7.3 million, or 39%, from the prior year. As of December 31, 2005 the Company had $22.8 million of cash, cash equivalents and restricted cash.

At the present time we would like to open the call to questions.

(OPERATOR INSTRUCTIONS). Frank Morgan with Jefferies & Co.

A couple of questions here, so you may want to jot these we go. The first thing I would like is a little more detail on this latest JV. I know in the press release you talked about closing on four out of the five, but things like actual unit capacity versus resident capacity, average monthly rents, margins?

This is going to be a 10% ownership stake like you've done in some of the others?

The second one is really more of a modeling question to affect all these sale leasebacks that you're doing, I guess even including the ones today. If you could give us an idea of what rent expense would look like? And I am assuming that you will be amortizing those gains on the sale will get netted out against the rent expense over the course of the year.

Just help us work through what is going on with rent expense, with depreciation and amortization, and interest expense. And I guess the final one is -- Ralph mentioned a little bit -- but pro forma balance sheet for all of these items you have contemplated, even the ones today? And that's got it. Thanks.

Jim Stroud. I will speak to the joint venture with GE Healthcare Financial Services. As you know, GE has been very active on the debt side and has now made a commitment to the industry on the equity side. This is their first joint venture. We are pleased that Capital is their joint venture partner.

The five communities are located in Nebraska; four in Nebraska, one in Iowa. They comprise -- all five of them are 293 assisted living units. And the resident capacity on that is 389 units. The average occupancy is approximately 92% upon the date that we contracted it and pursuant to our press release in January 13 of 2006. The rents are -- it is a combination of rent as well as a delivery of additional assisted living care. And the range on that goes from about $1,900 on the one bedroom all the way up to close to $2,900. Then in addition the average additional medical delivery to that is about $300 per resident per month. That is the range on it. We can go ahead and comment further if you need that.

From a standpoint of the closing we have closed four of five. The fifth property is a HUD financed property. And that closing is anticipated to be March 31. And so we will have all five of the SilverCrest assets closed at that time.

And your equity ownership, is it 10%?

It is actually 11%. It made change once we finalize some of the recent financings because, as Jim said, we are assuming one HUD loan. There are other financing that we're actually refinancing in probably over the next quarter. So once we finalize that refinancing we will exact the amount of equity, but initially we have an 11% equity investment in the venture.

It starts at 11%, as Larry mentioned, on a pari passu basis. And the business arrangement that it can go all the way up to 15% based upon the refinancing of those assets.

And to the Company we receive management fees. As Jim said, we get a pari passu return on our investment. And then we have a promote with a larger back end interest based on performance.

(OPERATOR INSTRUCTIONS). Jerry Doctrow with --.

I think we haven't finished answering Frank's question. The second point of Frank's question was a sale leaseback, I believe.

Yes, that's right.

I'm sorry, Jerry, if you will wait just a moment.

Frank, just to give you a few of the financial details of that. As Larry said, we have announced three sale leaseback transactions; one from the BRE joint venture to Ventas, one single asset owned community to Ventas, and then the three that were announced overnight.

The total of those three transactions is about $168 million that we will have as a base against about an 8% lease rate -- initial lease rate on those. You calculate your lease expense based on that. The total gains on those three transactions were about $4 million in the BRE transaction, about 14.5 million from Towne Centre when that closes, and then $13 million whenever the three transactions -- or the three property transactions closes. So the total estimated gains will be about $31.5 million on those three transactions. And they're all amortized over a ten year period. So approximately $3.2 million of gain amortization as a result of those three transactions that are already announced, assuming that the estimated gains turn out to be the actual gains when those properties close.

And then cash proceeds will be about $42 million to the Company as a result of those three transactions. And we will take $45.8 million of debt off the balance sheet. We will save interest on $45.8 million of debt. We will pick up $42 million of cash. We will amortize $31.5 million of gains over ten years. And we will have lease expense on about $168 million that will begin at an 8% rate with some conditional escalation provisions.

The interest rate, the current rate on the debt that is being retired or assumed is about 8.2%. That is both floating-rate debt and the fixed-rate debt. If you look at $45 million of debt at 8.2%, that would save about $3.7 million a year in interest expense.

And then kind of pro forma balance sheet for all of this stuff? And then also what happens to depreciation and amortization?

The depreciation and amortization on the four properties that we own, the Towne Centre and the three properties we announced last night, of course, that depreciation will come off the balance sheet. We haven't actually disclosed that number yet, but there will be some depreciation savings as well.

(OPERATOR INSTRUCTIONS). Jerry Doctrow with Stifel Nicolaus.

I probably want to go back and do a little bit more detail on timing and stuff on these deals, but we can go do that somewhere off-line. In terms of the quarter the reason you didn't provide a number in terms of EPS is because you haven't sorted out your tax deferral? Is that what was going on?

Right. It is Ralph. We just engaged KPMG subsequent to our annual meeting last year, so they have been on the engagement. They actually did a second quarter and a third quarter review. But this is the first time that KPMG has audited the Company, so there are some start up issues that we're dealing with just in terms of the transition between our previous independent accountants and KPMG.

We're working through some issues. Obviously the review process is a little bit more rigorous than it would have been if they were continuing with the previous auditors. But we're basically taking a look at deferred tax assets for the Company, which average between 9 and $10 million, primarily basically timing differences and differences between book and tax basis. We're working through those issues. Just could not get a final tax provision in time to make this release. But we're nearly complete with that process. And of course our 10-K will be filed next week. So that at the present time we just can't give you a precise provision for income taxes, which we will have forthcoming.

Can we at least get share counts for the quarter -- average share count and ending share count?

I can give you those numbers. For earnings per share the basic shares outstanding are about 25.9 million.

And would the diluted be the same, or you've got some --?

It would be the same. It is basic and diluted.

Okay, basic and diluted. And how about do you ending share count there as well?

Ending will be about 25.8. The ending share count is about 100,000 shares less than the average.

In terms of just tax, I guess I can go back and look at this, but you are not running a full tax rate, you're running much less than a full tax rate. Just remind me where you were last quarter?

We were running about 35% or so in terms of a tax benefit from the losses. And that was a 34% federal statutory rate, plus some benefit from the states. Of course the state issue becomes more complex than the federal because different states have different tax methods. Some tax on income, some tax on capital. So that while our normal tax rate, if we were in a profit situation, might be 36, 37, 38%, we have been booking a tax benefit that is less than that because we don't receive the full benefit from some state income taxes.

That is the number that will bounce around once -- be settled once we see the K?

Right. Once we have that number finalized, we will actually have that as part of our 10-K filing.

I guess maybe back to Larry and Jim, you have had obviously this -- a flurry of transactions here which will do a lot to change the balance sheet. And I think you said would be immediately accretive in terms of leases. Are we sort of done at this point, or additional sale leasebacks because you still have some additional debt outstanding? Can you just kind of give me a sense of where you're headed on a balance sheet perspective? And maybe a little bit more just on business strategy development versus acquisitions, which is kind of where we go from here?

We will have some more sale leaseback transactions. Some of those will be announced shortly. We will still own most of our assets at the end of this -- these transactions. Clearly, we are looking and continuing to look at the ability to maximize our earnings and our balance sheet by looking at transactions that may evolve over the next three years, particularly with respect to the newer Wellington and Waterford properties, because our rent is still lower than our other properties, although the occupancies are growing nicely and the margins are expanding.

As far as our growth, we -- will be primarily acquisitions of existing properties. The portfolios like the one we announced in January with GE Healthcare Finance, we expect will continue to have acquisitions of those size and magnitude, with both GE Healthcare Finance and other joint venture partners.

The Georgetown Place transaction that will be closed in October was a single asset, stable property in Fort Wayne, Indiana that we bought with -- actually Ventas acquired, will be [put] back. I expect we will continue to grow our portfolio that way as well.

We have been benefiting from a very attractive lease rate environments where we have negotiated leases now with two different sources where our initial rate is 8%. And then we have escalators that are conditioned upon certain performance standards that have either a percentage of CPI or some other methodology on increases. But when we look at the growth of our same-store sales year-over-year, have been very strong double-digit growth drivers. We think (technical difficulty) our operations through the lease structure as we continue to grow our business.

The primary source of external growth will be acquisitions of existing properties, again either in joint venture or with REITs. And then our development, as we spoke about last quarter, we're moving forward. We have two sites in Ohio that we have owned since 1999. They are very attractive markets with great demographics. Everything in that market is pretty well full, so we think there is a good opportunity to build properties, which would average about 130 units, comprising of about 100 units of independent and 30 units of assisted living. Again, those would be done with a joint venture with our typical joint venture structure.

And we are looking at sites where we expect -- but again our development growth will be focused and limited. We have been very disciplined in trying to find sites in markets which have strong barriers to entry. I will tell you that zoning is a very complex process today, and good sites are hard to find. I think it speaks well for the industry, quite frankly, that even if people want to develop, it is very high to find suitable sites for development. And I expect that we will towards the middle and second half of the year start to announce some site acquisitions that will position us for construction starts in '07, again, with a joint venture partner.

Just a couple more, if I could. Any thought to giving guidance -- giving also the moving parts here? We can sort of work through it, but you also have acquisitions. You also have development. You also have more sale leasebacks. Is that something you'd be in a position to do or giving any thought to do?

We discuss it. Obviously until we fix our debt, I mean the other components to this whole process we have announced the retirement or elimination of about $45 million of debt. We're working towards a refinance on virtually all of our variable rate debt, which should occur in the second quarter, at fixed rates. The ten year has moved up some. But if you look at the financing we completed with GMAC over the summer that was at a spread of 130 basis points over the ten year.

We have been very fortunate to be able to -- I think it is a combination of our independent and assisted living focus and the track record of the Company that we have been successful in attracting very attractive terms on our financings, both lease rates and interest rates on mortgages. I think that as we get to the second quarter once we complete that and enough sale leasebacks, I think there will be very good visibility for our earnings growth, and we can take a look at it then.

At this time I think it is premature to consider it, only because there are too many moving pieces right now. I think we're going through a transformational year, which is exciting for us. We have great drivers on our own asset base with growth there. We are seeing great opportunities for expansions through acquisitions. And again, I think that as we get probably beyond the second quarter, once all these pieces are nailed down, we will be in a much better position to have better visibility.

The last thing is you had I think a proposal from an institutional investor to basically I think put the Company up for sale in December. Any comments on that or discussions with them, or your thoughts?

We did. There is an 8-K filing of a letter we sent back to them. The Board actually sent back, both the Independent Directors and the full Board. The responses, which is consistent with our business plan, is we're looking forward to growing our assets and our income potential. We think we've got a great platform for growth. And we're continuing to move forward.

We have invited Mercury to come talk if they would like to. The opportunity is open for them. We would be happy to share with them, with the company and [Jarvis and MacLean] our plans, because we think that we have a very strong business plan that was developed with the Board towards the second half of 2005, which provides an exciting opportunity for our growth. That offer is out there, but there's nothing else going on.

[Harvey Hannfield] with [West Creek Capital].

My questions revolves around certain other questions that Jerry just asked. And that is in reading the press releases and listening to your prepared comments, you discussed your business plan in terms of abstractions; moving forward, terrific potential, earnings growth. And I guess my question, or my question is why can't you and/or when can you tell us when you will break even? When you will generate free cash flow? How you are managing the Company? What the metrics for managing the Company are? If you can make -- if you can generate earnings, if you can generate a return on equity, why can't you tell us those things? As you pointed out, your marketplace is broiling -- is doing terrifically well, and you guys are muddling forward.

It is Larry Cohen. Thank you for your question. First of all, if you compare our results on a same-store basis, our growth in revenues, growth in EBITDAR and compare it to the other companies that reported, I think our performance actually is at the higher end of the comparative group.

If you look at year-over-year, and I do think we have very good information that we have been giving out to our investors in our releases, obviously we have been very active with a significant amount of transactions in the last number of months that have untapped a lot of the value and equity in our properties that have generated significant gains that will give us a ten-year amortization period of built-in gains that will be recognized.

Clearly all this is being driven towards a profitable format for the Company. I think that most of the investors and analysts, with the detailed information that we have given, actually have pretty good models that have been able to run their numbers and see where the direction is moving.

As I said to Jerry, we still have some pieces to be put together, particularly on the refinance, which it will be significant. And at this point, we're going through a significant transformation, really getting some great leverage off the operations of this business. I do think that we have consistently given good information to the marketplace of our operating performance. We have been giving detailed schedules with every earnings release for the last three years that break out each of our portfolios, with good data on same-store sales, rank comparisons, occupancies, expenses, margins. I think we give very good detail. We actually take great pride in the performance.

We do own 17 properties that opened in very competitive markets between 1999 and 2002. They are now 92% occupied. We saw, again, if you look at our performance year-over-year on that portfolio alone, as I mentioned, we saw revenues grow by about 9% year-over-year. And actually saw our income growth for that portfolio on a same-store comparison over the last year of over 30%.

I think we're making good progress. You're right, the market is probably as good as it has been for many, many years. Our occupancies are achieving levels that we haven't seen in many years. And we see further improvement. The nice thing about our business is that the supply is very constrained. It is very difficult for people to find sites, to build sites, to get them financed. If you look at all the data in the industry, the growth rate of supply over the last four or five years has been about 1%. And you have a demand growth of over 2.8% a year. We are seeing the effects of the convergence of these positive metrics in the industry.

And I will tell you, I ran in real estate company before coming here that hired Capital Senior as an operator, and saw from the outside the performance that was done. And I would put up the operating skill of this Company against anyone in this industry. It is being recognized by our lenders. It is being recognized by new joint venture partners and other REITs. As well -- I feel that we are on a good course. We're making extremely good progress. If you look at the results throughout this year and the transactions we have recently completed and the magnitude of the gains, I think that people can see fairly easily that we will be in a breakeven in a positive position. And actually in our cash flow position we have been positive for a number of years. If you add back depreciation and amortization to our reported results over the last number of years, we have been cash flow positive.

Thank you. Are you currently trading at a discount, a premium, or around net asset value? Is $10 a share below or above net asset value, given your visibility into the marketplace and what things are trading for?

We do not value our assets. We do not mark assets mark-to-market every year. We don't have to. We have historical basis on our assets under GAAP. Clearly, if you look at the transaction that was announced this morning, the average cost price per unit is about $110,000 per unit. Some of those assets sold actually over $125,000 per unit. One asset, just because of the right structure, was a little lower than that.

I think though -- I look at our business and the value of our stock that the asset value is in a sense a floor to the stock price, because that is a realizable value. I think the operating platform for growth should give us value way beyond that. I think that we are well-poised to continue to grow, to continue to transact, and to continue to see our stock price grow because we are converting from an asset-based evaluation to an earnings-based evaluation. And we are very excited about that transformation, because we think that the multiples of this industry demand and are justified based on the growth rates and the strength of this industry.

Coupled with the fact that if you look at the transactions occurring, there are only a handful of operators in this industry that are really capturing these opportunities. We have 1.3 million purpose built professionally managed units in this industry nationwide. And the activity today because values have improved, and there is financing available for qualified operators, we think we have a great platform to improve. And it is being recognized by both institutional investors and lenders.

I understand that. And that is the reason that I -- that is the reason I asked you about the NAV because it is my belief that it is not being recognized in the stock market, because it is my sense that $10 is under asset value. And it is confusing to me. So I was curious to know whether or not you thought that $10 was below asset value. You said it created a floor, and I was just curious given that you're out there in the market and know much more about it than I. And one of the things that concern me is the fact that the management team continues to sell stock. 250,000 shares again sold at what I consider to be below asset value. I was hopeful that you could address that as well.

Sure. This is Jim Stroud. I think you're reverencing the Form 4 that I filed. Two years ago, based upon estate planning and recognizing that if I were to pass away it would be a significant download of stock into the marketplace, entered into a 10b5 plan with the mindset to go ahead and reduce the exposure of my estate. So it is all geared on estate planning. It is not geared upon the current value or the current reflection that I would have on this Company.

From a standpoint of looking at your other question as to the value, I think the best precursors of value of this Company are looking at the sale leaseback transactions. And as reported, we have had one that we announced effectively that created a gain of close to 14.5 million, and that was a single asset transaction in February. And then the release today is an additional gain of 13 million on three communities.

The business plan is to leverage off our operational strength, which has always been the cornerstone of this Company. And now we have the structure with the quality REITs like Ventas to go ahead and achieve a sale leaseback and convert our ownership on balance sheet that is not recognized, as you mentioned, to reflect the gains and reduce the debt. And then likewise, to provide for future growth through very limited development on a selected basis, and even a broader basis with the joint venture acquisitions, such as GE. Because if you go back and look at the success we had with Blackstone, that foundation was laid three to four years ago. And we look to have the same type of foundation with GE.

Thank you very, very much for answering my questions and taking my call.

Todd Cohen with MTC Advisers.

I have got a couple of questions. One is clarification. Earlier in the call you laid out some of the balance sheet items that were tied into some of these recent transactions. I think you said there would be an additional $42 million coming in. Is that correct?

That is correct. That $42 million would be the cash proceeds that have both already been realized and anticipated to be realized whenever these subsequent transactions close. About $42 million of net cash proceeds over and above roughly $46 million of debt reduction.

There will be $46 million of debt that comes off the balance sheet, that is gone. And then there will be -- there was at the end of the year 22 million in cash on the balance sheet I think you said?

That's right. About 22.8 million.

Then you are saying that is going to go to 64?

There will be some taxes paid on those transactions. The (multiple speakers) is a pretax number. We do have some loss carryforwards that would shelter part of that, but the entire $42 million would not be an addition to our cash balance.

That is not being used to pay down that debt, the $45 million -- you're not replacing --?

They are two separate -- the (indiscernible) million dollars of debt is over and above the cash proceeds.

And then in looking back at some of your press releases, and I may have missed this earlier, you're now defining -- you're using this EBITDAR term. And that was I think what, was it 8.4 million for the quarter that just ended?

Right, the only difference between the way we have been talking about EBITDA in the past and EBITDAR presently is for the first time, because the first sale leaseback transaction closed right at the end of the third quarter, beginning of the fourth quarter, we now have lease expense on the Company's income statement for the first time. That lease expense is $2.1 million. It leads us to start reading reporting EBITDAR rather than EBITDA.

But you compared that to a figure for last year's fourth quarter, up 5.1 million, right?

There was no lease expense in the previous year's number.

Okay.

The difference, really, if you wanted to get a comparable number, would be to remove the $2.1 million of lease expense from this year's EBITDAR, and that would give you an apples-to-apples comparison with last year's EBITDA.

I understand. And then two more questions. When do you expect this variable rate financing will be completing -- you're suggesting in the second quarter?

It is actually underway as we speak. It is just a matter of closing a transaction of that size. We are anticipating early second quarter.

That is coming right up. And then Jim Stroud, Jim, how much more stock is left in your 10b5 program? Is it the whole thing or is there a fixed amount?

No, there is not a fixed amount. The way it was set up is that it would be limited to no more than 250,000 shares per quarter. That decision is made by a trustee of a family trust that is completely independent from my decision-making. It is based upon their advice with their financial advisers.

The thing I was focused on, obviously, was to benefit not only the other shareholders, but also to the company, and that is why it is limited to 250,000. And it is also the Company that sells that is Jefferies, that was part of the original IPO, as well as a secondary offering I guess back in January of '04. The point is that they have a vested interest to be sure that it is done in a way that is not disruptive to the marketplace.

And just one last question. If someone were to come in though to Jefferies and wanted to -- could you increase the size of that 250 on a quarterly basis if someone came in for --?

It is set right now at $250,000.

250,000 shares.

250,000 shares, yes. And it -- the plan, if you look at the Form 4 it is a plan that was in place effectively in May of '05. And there was a previous plan that was there in May of '04 that wasn't even triggered. So there is -- they set up certain floor amounts just to maintain the market value of the stock.

At this time there are no further questions. I would like to turn it back to you, Mr. Stroud, for any closing remarks.

We appreciate the questions, and we look forward to continued execution on our business plan. Have a good day.

Thank you. This does conclude today's conference. We would like to thank everyone for your participation. Have a wonderful day.