Sonida Senior Living Inc (SNDA) 2007 Q4 法說會逐字稿

Good day, and welcome to the Capital Senior Living fourth quarter 2007 earnings release conference call. Today's conference is being recorded. Any forward-looking statements made by the 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 and 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 changes in accounting principles and interpretations among others, and other 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 2007 earnings call. The operating platform of the Company continued solid performance in the fourth quarter, despite the turmoil in the financial markets. We continue to leverage our operational strengths, while tightly controlling expenses. Our continuum of care philosophy is one plank in our platform that continues to be effective by integrating independent living, assisted living, and home healthcare services on our 64 communities. The portfolio balance of 37 communities owned or with an ownership interest and 25 communities leased is a second plank of our platform. The experience of our onsite, regional, and executive management team is the third plank. The onsite executive directors average 10 years of experience.

Regional managers average 17 years and executive management averages 28 years in the senior living business. This operating platform achieved in 2007, a $14.8 million increase in annual EBITDAR, and a $30 million increase in revenue. The full year EBITDAR margin improved by 380 basis points and nearly 31% in the fourth quarter. These results reflect our continued execution of the 2007 business plan. The Board of Directors of Capital Senior Living is committed to maximizing shareholder value for all shareholders. The Board is reviewing the benefits of expanding the seven-member board to nine members and undertaking a formal review of strategic alternatives. The Board candidates would include shareholders and/or shareholder representatives, including West Creek. This process is evidence of the Board's commitment to shareholder value. Now, for further comment on the fourth quarter results, I introduce Larry Cohen, Chief Executive Officer.

Thank you, Jim, and good morning, everybody. Our 2007 business plan was focused on increasing shareholder value by providing significant income and asset growth, strengthening our balance sheet, and improving the Company's profitability. I am pleased to report that we made progress on many of these fronts in 2007.

Revenues, EBITDAR, and net income all increased significantly, as margins expanded through higher rents and sound expense controls. Our 2008 business plan is focused on increasing capacity and levels of care to meet the needs of our residents, with an average age of 85 through expansions, conversions, new developments, and home healthcare. These investments are expected to produce excellent returns on invested capital and build shareholder value. We achieved solid community operating results in the fourth quarter of 2007. During the fourth quarter, 60 of our communities were stabilized, with a 90% average physical occupancy rate and operating margins before property taxes, insurance, and management fees were 48% in our stabilized independent and assisted living communities.

Same-store revenues had 60 communities under management in both the fourth quarter of 2007 and 2006. These include revenues generated by our consolidated communities, communities owned in joint ventures, and communities owned by third parties and managed by the Company, increased 4.1%, with a 4.7% increase in average monthly rents and a 0.5% decrease in financial occupancy. Our sound expense controls and group purchasing program limited same-store expense growth to 0.4%, resulting in same-store net income growth of 10.1% from the comparable period in 2006. The operating leverage in our business model is reflected in the 93% incremental EBITDAR margin realized from these same-store revenue increases.

The number of communities we consolidated in the fourth quarter increased to 49, from 43 a year earlier. Financial occupancies at these communities averaged 88.5% during the quarter. Operating margins at our consolidated communities were 44% during the quarter, and average monthly rents were $2404, a 2% sequential increase from third quarter average monthly rates. 17 of our consolidated properties are Waterford Wellington communities, which we developed and opened between 1999 and 2002. In the fourth quarter 2007, these communities enjoyed a 91.7% financial occupancy, consistent with the fourth quarter of 2006, and average monthly rents grew 4.4% to 2028. Operating margins also improved at the Waterford Wellington's to 45% from 43% a year earlier.

Every increase in occupancy of 1% at our consolidated communities would generate approximately $2 million in additional revenues, a 5% increase in average monthly rents at our consolidated communities would generate approximately $8.5 million in additional annual consolidated revenues over annualized December 2007 revenues. At an 80% incremental EBITDAR margin, these additional revenues would increase the Company's EBITDAR significantly.

We continue to perform well in a challenging economic environment. The average age of our resident is 85, and a decision to move into a senior living community, both independent living and assisted living, is need-driven. Residents typically move from their former residences due to health problems, difficulty in maintaining a home, climbing stairs, lifting items, loneliness, and a need for supportive services. Through assisted living, or home healthcare residing in our independent living communities, residents can receive these services at all of our communities. The elder senior population generally carries no mortgages on their homes and they have experienced significant increases in the values of their homes. More significantly, the cost of living at one of our communities is typically more affordable than living at home. This is even more compelling today, as many seniors living at home on fixed incomes are facing increasing costs for fuel and food and are looking for value.

While we have seen the effects of the housing market impact a few isolated markets our move-ins, deposits, tours and leads generated continue to be solid, as we continue to execute on the fundamentals. Having the right people in place, with the right focus and tools. In the few communities that have been impacted by the housing market, we continue to manage our operating expenses to occupancies through managing our staffing and food costs, and thereby maintaining good margins. The negligible impact of the housing market on our operations is evident in our fourth quarter same-store sales results and trends through the first two months of this year are encouraging. As announced, we intend to add additional levels of care at 11 communities. We plan to convert 256 independent units in 8 communities to assisted living and dementia care. Of these, 80 were converted in 2007 and the remaining units are expected to be licensed as assisted living in the next two quarters. The estimated cost for these conversions is less than $2 million and upon reaching stabilization, these converted units are expected to increase our revenues by approximately $4.3 million, with a 60% incremental margin.

We are also planning on expanding three communities beginning in the second half of the year. These expansions will add 270 units for the total cost of approximately $27 million, which is expected to be funded by supplemental mortgage financing and cash on hand. Upon stabilization, these additional units are expected to increase our revenues by approximately $9.1 million, with a 60% incremental margin. We have had terrific results in generating significant improvements at communities that have been expanded or have had units converted to higher levels of care. Adding additional levels of care at existing properties should enhance revenues and cash flows by improving occupancies, reducing attrition, increasing average monthly rates, and expanding margins. We plan to acquire a home care agency in the Dallas metroplex, where we operate 15 communities including our most recent addition of Whitley Place in Keller, Texas.

All of our independent living communities rent space to home care agencies and many of our residents with an average age of 85 utilize their services. By having ownership in an agency, we will be able to better integrate the delivery of services to our residents and benefit from increased revenues from the home care services, as well as from longer lengths of stays at our communities. As announced in our press release, we have entered into another joint venture with Prudential Real Estate Investors, acting on behalf of institutional investors to develop a 146-unit independent and assisted living community in Perrysburg, Ohio. We are actively working on additional sites, primarily in storm (inaudible) markets for a limited number of joint venture developments.

New developments of seniors housing continues to be severely constrained, with new supply having grown at a compounded annual growth rate of only 1.3% since 1999. We continue to analyze the construction that is reported by the National Investment Center for the 100 largest metropolitan statistical areas. According to the fourth quarter 2007 [NITT MAPP] construction report, there are only three new developments in the zip codes in which we operate. This confirms our own research that construction is negligible in our markets and we expect building will continue to be rare as a scarcity of well-located sites, high construction costs, complexities with zoning and limited sources of capital continue to restrict new construction. This has been exacerbated by the limited number of markets that can afford their higher rents necessary to generate an adequate return on significantly higher development costs. And the current credit crisis should further constrain development for an extended period of time, providing an environment where fundamentals for the seniors housing industry continue to be solid.

The seniors housing acquisition market continues to be attractive. We continue to benefit from strong relationships with healthcare REITs and strategic financial partners with attractive cost of capital. The credit crunch that is affecting the capital markets has made the acquisition market more rational, benefiting Capital Senior Living, as the strategic buyer that is not reliant on conduit loans, mezzanine financing or high yield debt. Financing is still available to proven senior housing operators on attractive terms. We have filled out our platform with dozens of acquisitions over the past two years and are strategically looking at clustering acquisitions in a number of markets where we have concentrated operations. Our balance sheet is solid, with fixed mortgage debt at very attractive rates. Our existing infrastructure and platform allow us to integrate these acquisitions at very low incremental costs. Our access to attractive capital, sound expense controls, and group purchasing program give us competitive advantage in competing for acquisition opportunities.

The Capital Senior Living management team and Board have two key priorities. First, we will continue to provide our residents with high quality housing and services, with qualified and caring employees. Our residents, once again, gave us high marks on our annual resident satisfaction survey with a 94% approval rating for 2007. Second, the Board is looking forward to adding shareholder representation and initiating a process to review strategic alternatives to maximize shareholder value. The fundamentals for the senior living industry continue to be solid and we continue to generate strong cash flow. We appreciate the input we have received from many of our shareholders and are committed to building shareholder value. 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 2007.

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. If you need a copy of our press release, it has been posted on our corporate website at www.capitalsenior.com.

The Company reported revenue of $48.2 million in the fourth quarter of 2007, compared to revenue of $43 million in the fourth quarter of 2006, an increase of $5.2 million, or 12%. The number of consolidated communities has increased by 1 since the fourth quarter of last year, from 48 to 49. Financial occupancy at consolidated portfolio averaged 88.5% for the quarter, with an average monthly rent of $2404 per occupied unit. Approximately $0.6 million of unaffiliated management services revenue in the quarter reflects the recovery of management fees from covenant, under the provisions of the August 2004 CGIM purchase agreement. Under the terms of this agreement, the Company had the right to true up expected management fee revenues, if we didn't receive required minimum fee income from the acquired management contracts. The reconciliation of this provision resulted in additional quarterly revenue of $0.6 million and that is the final reconciliation of this matter. Approximately $0.5 million of revenue in the current quarter reflects development fees from joint ventures that are developing three senior living communities in Ohio.

Revenue under management increased approximately 9% to $55.9 million in the fourth quarter of 2007, from $51.5 million in the fourth quarter of 2006. Revenue under management includes revenue generated by the Company's consolidated communities, communities owned to joint ventures and communities owned by third parties that are managed by the Company. There were 64 communities under management in both periods.

Along with a $5.2 million increase in revenues, operating expenses increased by $2.5 million, from the fourth quarter of 2006. As a percentage of resident and healthcare revenues, operating expenses decreased from 63% in the fourth quarter of last year to 62.4% this year, reflecting 60 basis points of margin improvement. During the quarter, we received updated property tax assessments from local jurisdictions from three communities. These assessments cover both current and prior periods and caused us to book an additional $0.3 million of real estate tax accruals. Had these property taxes been booked in the earlier periods to which they applied rather than the fourth quarter, this quarter's operating expenses would have been 61.7% of resident and healthcare revenue.

General and administrative expenses of $2.9 million were approximately $0.2 million higher than the fourth quarter of 2006. Approximately half of this increase was due to expenses associated with the Company's investment in information technology and half was due to transaction costs for the Heartstone acquisition, which the Company terminated in February of 2008. We expect approximately $200,000 of additional expense to be written off in the first quarter of 2008 from the Heartstone due diligence process.

As a percentage of revenue under management, general and administrative expenses in the fourth quarter of 2007 were 5.6%. Excluding the Heartstone transaction costs and normalizing the effect of the real estate tax adjustments, adjusted EBITDAR for the fourth quarter of 2007 was approximately $14.9 million, an increase of 25% from $11.9 million in the fourth quarter of 2006. Adjusted EBITDAR margin was 30.9% for the period, a 320-basis point improvement from the comparable period of the prior year.

Facility lease expenses were $6.9 million in the fourth quarter of 2007, approximately $1.3 million higher than the fourth quarter of 2006, reflecting 24 leased communities at the end of this quarter versus 23 at the end of the fourth quarter of the prior year. Interest expense was $3.1 million in the fourth quarter of 2007 and is stable at that level since all of our mortgage debt is at fixed interest rates. The Company reported a gain on sale of assets of $0.8 million in the third quarter of this year, reflecting the amortized portion of deferred gains on leased transactions.

The Company reported pretax income of approximately $2.6 million in the fourth quarter of 2007 compared to approximately $1.2 million in the fourth quarter of 2006. Pretax income in the fourth quarter of 2007 is net of approximately $0.1 million of Heartstone transaction costs and approximately $0.3 million of real estate tax adjustments. Excluding these items, adjusted pretax income in the fourth quarter of 2007 was $3 million. The Company reported net income of $1.3 million, or $0.05 per diluted share in the fourth quarter of 2007 versus net income of $0.8 million, or $0.03 per diluted share in the fourth quarter of 2006.

The Company's tax rate in the fourth quarter of 2007 was 49.6%, approximately 11 percentage points higher than normal. The higher rate is due to true-ups of 2006 taxes, which occurred when federal and state income tax returns were prepared in late 2007. The Company generated approximately $34 million of taxable gains on sale leaseback transactions in 2006. These gains were deferred and amortized under GAAP, but not for tax purposes. When the 2006 tax returns were filed late last year, the Company booked an additional $0.3 million, or 0.1% of the taxable gains as additional tax provision in the fourth quarter. Normalizing this tax provision at a rate of 38.5%, along with the pretax adjustments mentioned earlier would increase net income from the reported $1.3 million, or $0.05 per diluted share to an adjusted net income of $1.8 million, or $0.07 per diluted share. On this same basis, adjusted cash earnings were $4.8 million, or $0.18 per diluted share in the fourth quarter of 2007 versus $3.4 million, or $0.13 per diluted share in the fourth quarter of 2006.

Capital expenditures in the fourth quarter of 2007 were approximately $3.4 million, including $1.6 million of systems development, $0.7 million of community renovations, and $1.1 million for recurring items. The Company ended the quarter with approximately $23.4 million of cash and cash equivalents, and approximately $189.1 million of mortgage debt at fixed interest rates averaging approximately 6.1%. At the present time, we would like to open the call to questions.

Thank you. (OPERATOR INSTRUCTIONS) We'll take a question from Jerry Doctrow with Stifel Nicolaus. Please go ahead.

Good morning. I just have a couple different things. The one issue on the finances was management revenue. That came in I think for both the unaffiliated and the affiliated a good deal higher. I was curious if you could give me a little color on that and maybe what levels we might expect to go forward.

Jerry, I would say going forward, you should probably adjust the unaffiliated management services revenue by approximately $600,000. We did have the covenant group true-up in the fourth quarter. This was the final reconciliation of an August 2004 acquisition of some management contracts, whereby we had the right to basically claw back part of the purchase price if we didn't receive the level of estimated management fee income. So that part of this management fee income in the fourth quarter of 2007 was a reconciliation of that acquisition that was done three years ago and that would not reoccur. The rest of the management fee services revenue should be recurring. We did have one small management contract which terminated at the end of December, but that would not make a significant difference in that amount going forward.

And do you have some of the construction, or the development fees coming in yet, or is that -- that won't start until 1Q?

We actually had in the fourth quarter about $500,000 of development fee income. That brought our annual number up to about $900,000. That was primarily two projects, because we just started the third project right at the end of December. The $0.5 million really related to about two projects. Going forward, each of these three projects should ultimately produce about 1.1 million to $1.2 million of development fee income over the construction period of those projects, or in rough terms, about $100,000 per month per project. And we now have three of them that are going at full speed.

And in the quarter, you had sort of two-up and you'll get a little bit of pickup as we go forward?

Right. Because we did start the third one just at the end of the fourth quarter.

Okay. Should the 600 K be really considered a one-time item? Obviously you didn't back it out, but is that--?

It does -- it really related to the income that would have been received earlier if we had realized management fee income that we intended to purchase at the time the transaction was finalized so that it really would -- might have related to other periods, but it was a true-up of that management fee revenue which occurred in the fourth quarter. It would not reoccur.

Okay. A couple other things, if I could. Any additional color you can just give us on the ramp up of, I think Larry talked about when you add either a conversion or an expansion, you get the certain numbers when they are stabilized. Any feel for how long those periods are on a conversion or an addition?

Good morning, Jerry. On the conversions, we expect that most of the conversions will open in Q3. One conversion will probably open in Q4, and I would expect that the anticipated revenue contribution should be pretty fully recognized in 2009. As far as the expansions, the expansions will begin second half of this year, which means they will be complete in the first part of 2009, and then we'll start to see the contribution as we fill in those expanded units. Typically what will occur is that we'll have converting -- we will have transfers of residents from independent living to the higher levels of care, refill the independent and also market to the -- out to the market. So we'll see the contribution on the expansions coming in probably in the second half of 2009 and fully in 2010.

Okay, and I thought you were saying first half. But that's when the construction starts and then there will be--?

On the expansions, construction will start in the second half of this year.

Second.

Half, so the construction starts in the second half of this year, so they will be complete early 2009.

Okay.

Conversions will be complete. As I said, conversions, we expect almost all the conversions to open this summer, in the beginning of Q3.

Okay. Just one or two other things. On acquisition environment, I was just wondering if you could give us a little more color. Assuming you did a REIT deal, the REIT leases I think were like [7.75] when you did them before. I assume maybe that's bumped up a little bit.

Well, last week we just closed, Whitley Place, which we just announced, was [7.75].

So you think that rate still holds?

I would tell you that the environment really from a financing standpoint, both with the REITs and our lenders, really is very comparable to what it's been.

Okay, and then one or two other quick ones if I could. Rate growth in the quarter was just terrific Q over Q. I think you were up 2%. Any sense of where that moves in the first quarter, because typically I assume you guys do this as well. Rates get reset first quarter and you're also seeing a bigger jump.

What we did Jerry, is, we talked about this earlier last year. Based on the strength of most of our properties, in September, we increased the rents, street rents and renewal rents at all of our properties that were 93% or higher.

Okay.

In January, we now have implemented across our portfolio with our typical budgeting, increases for 2008. So there will be additional increases at most of our properties upon move-ins and renewals at our communities. The other aspect is, if you recall, in the summer of 2006, we introduced a one-time community fee. It initially was set at typically $500 per move-in. Some properties, maybe a little higher. Again, in September of '07 we increased the community fee rate by $500 per move-in, so we're now averaging over $1000 per move-in and what we are seeing is that we are still getting good velocity, good move-ins, and it's really a combination of the mark to market affect of the renewals or more importantly street rent, new residents moving in, coupled with these community fees that are driving the higher rents and that, we think, will continue this year.

Okay. You touched on -- two more. Housing markets, basically saying it wasn't having that much of an effect. You talked about a couple of markets. Is there anything sort of, just to get a little more color, anything -- where is -- why is it -- where you're having an issue with it, is there anything characteristically of those markets, or are those just ones where the housing market is worse or the nature of your projects, I'm just trying to understand kind of--?

Jerry, we've had the same issues at a few of the properties for two years. One property in Florida, one -- couple properties in California, and one in the Midwest. The Florida property, which is one of the conversions that we have targeted, that is anticipated to open, the conversions to be complete Q4 of taking 45 units. There are six separate buildings at Veranda Club. It's a beautiful property. We just renovated the lobby. The common area's got beautiful new pool/spa in the back of the building and we plan to have license. We're going through the construction right now, with the building codes to open hopefully in the, probably in the third quarter, 45 units of assisted living, with an average rent of about 33.25. That is the building that is 189 units of independent living, it's been a large building. We've operated since 1992. I cannot remember Veranda Club getting beyond 80, mid 80% occupancy for many, many years. And now it continues to operate in kind of a 70, 75% range, but still drives a pretty good cash flow, good margins and good rates.

For the Florida market, we have one building. We have been very deliberate. I think one of the reasons we have really escaped much of the housing market is we're not in Phoenix, we're not heavily invested in Florida, we're not in Las Vegas, and our California properties we've also operated since 1992. So through the diligence that we approach acquisitions, we look at demographics first. We look at supply and we stayed away from the bubble markets. We've stayed away from those markets that get overheated with too much housing construction, too much senior housing construction and quite frankly our profits are doing nicely. Veranda Club, which, I'm sorry -- (inaudible) which we have spoken about as a property in Santa Barbara that was challenged, we had nine move-ins last month. We're back up to 83%, so that's very significant. I am very encouraged with what we're seeing with the move-ins across the country. I mean we have had, in the last four weeks had the highest number of move-ins per week than we've had in the last year. That's not going to be consistent every week, but to me we're not seeing trends indicating that there's a housing problem effecting our residents moving in.

The other aspect of our business is our strategy of having an affordable product. Rate has avoided the smaller markets. We are in larger markets with larger communities and that's why we have high op margins. We can spread our costs across the base of operations and I believe we do the best of anyone in this industry of managing our expenses to our occupancy.

Okay.

And what we're finding is that the cost of the markets we operate in -- this NITT MAPP is very helpful. I go through the 11 markets that overlay with the top 75, and virtually every one of those markets, with the exception of Florida and Detroit, we basically are really -- maybe California, we're actually seeing housing values up in the fourth quarter year-over-year and the average housing values are approximately 180,000, $200,000 per house. So it's an environment where we have a global product. We're not in the high end district. We have a beautiful building, great quality of service, and it becomes very compelling and I have to tell you, these are the environments we thrive in, because as seniors become very conscious of their fixed costs, living at home on fixed income, and I saw this morning, average cost of fuel is $3.25 a gallon, going up this summer. Wheat is up, freight is up, (inaudible) is up, fruit costs are up. We obviously will have also higher costs, but with our group purchasing and spring goes out, it becomes even more compelling for seniors who are starting to realize that they may have challenges living at home on fixed income with higher costs.

Okay, and my last one, I was just curious if you can give us any sense of just the timing for the decision about expanding the Board and then pursuit of a strategic alternatives, when the decisions about that might get made.

Good morning, Jerry. Obviously we have received and continue to receive shareholder input and not only about this matter, but other matters and we're very much appreciative of that. We have two shareholders, West Creek and Boston Avenue have filed 13-Ds. From a standpoint of the expansion of the Board, we will -- the timing on that will be within the next month. We're sensitive and agree also with the position of a number of shareholders that a proxy contest is not in the best interest of the shareholders of the Company or us continuing our mission. So we would see the Board to continue to review the expansion of that and we should have some direction on that within the next month.

Okay, and then pursuit of strategic alternatives, that then becomes a discussion for the new expanded Board -- any color you can give me or sense of when that would be taken out?

That would be after the expansion of the Board, if that's deemed in the best interest of the shareholders. And keep in mind, our Board, on a periodic basis, does strategic reviews. I mean we've gone ahead and hired an investment bank over two years ago to review and oftentimes the Board will look to outside inputs. So that process would take place either co terminus in or even if the Board is not expanded, the Board would still consider that alternative.

Okay, thanks a lot.

Thank you. (OPERATOR INSTRUCTIONS) We'll take our next question from Brian Legg with Millennium Partners.

Yes, Jim, can you just expand upon that, the -- pursuing strategic alternatives, I assume that does mean you're going to hire an investment bank. Has that decision been made today, or do you think that ultimately will be the decision?

No, Brian, it currently is being reviewed by the Board and we're getting input, from shareholders, from legal counsel, and it's currently being reviewed by the Board. And within the next months, we should have some direction on it. But again, the Board on a periodic basis has reviewed strategic alternatives. So this is not a new procedure for the Board. It would just be for them to open it at this time.

And when you say open it at this time, are you going to wait until the two new Board members come aboard before you ultimately make that decision?

That would be the preference. If the decision is made to expand the Board, it would be logical to include the two new members in that discussion.

Okay, and so any thoughts, or maybe it's too early on the time line of when the ultimate decision would be made, when you're pursuing a strategic alternatives? How long of a window are you thinking about here?

Well, the strategic alternative generally takes months, and we're looking, obviously to expand and enhance shareholder value and that could be continuing to run the 2008 business plan and beyond, or other alternatives. And generally, that will take a number of months for that to be worked through. So the process would be first the Board's going to determine is it in the best interest of the shareholders to go ahead and expand the Board from seven to nine, if the decision of that is yes, then we go through, because we're New York Stock Exchange, Sarb-Ox, we would go through a nomination procedure and then add those two members and then logically go through and review strategic alternatives, all that to say it would take three to four months to do that.

Okay. Then the hiring the two Board members, what do you think the time line of when that would occur? And I assume you will press release all of these decisions within fairly short order?

Absolutely. The Company would issue a press release, in compliance with the SEC laws, and from a standpoint of the timing of the review by the Board, the Board's been reviewing that and my assumption would be in the next month we'll have a decision on whether or not the Board should be expanded.

It sounds like you're already talking about it. I mean why wouldn't you expand the Board?

Well, the question is not only should you expand it, but what the qualifications of those directors should be. And that's why we're, been out into the marketplace receiving input from shareholders, receiving input, not only from shareholders, but our lenders as well and so it's a cumulative process, because keep in mind, we also, not only have the equity side of it, we have the debt side, as well as the REIT side of the balance sheet.

And I would just speak for most shareholders, I think it would be a good idea to add two more shareholder friendly Board members.

Thank you. We appreciate that input.

Okay. Thank you very much.

And we'll take our next question from [Todd Cohen] with [MTC Advisors]. Please go ahead.

Good morning. I just had a question on a timing issue. I know that you just indicated that -- a proxy contest would not be in the best interest of shareholders. I agree 100% with that. I wanted to know is there a -- what is the timeframe with which a shareholder now has the ability to start that, to start a proxy contest, in the event some of the actions that you guys have discussed have not been acted upon?

Todd, the bylaws generally provide 60 days to a 90-day window before the annual shareholders meeting, and we have not announced the annual shareholders meeting.

And Todd, if it's within that 60-day period, there's still 10 days for a shareholder under our charter to proceed. But I do -- I want to say something, that we are having good discussions with our shareholders. I do believe the plan will be to expand the Board, add two shareholder representatives and we are looking forward to moving forward on this process, working through the nominating process and having new directors on, again, looking at the strategic alternatives and everything will be open and everything will be analyzed.

No, because I was just a little bit confused by all of this. I know it was your intentions to look at expanding the Board. I know you obviously were out there chatting with shareholders about it. And I was just a little bit confused by the 13-D amendment last night to West Creek that kind of highlighted their interests and I just -- it seemed, just kind of wondering why that occurred, after discussions kind of being under way across the Board. I just -- it seemed a little bit odd that would, that there would be an amendment made while you guys were in discussions with all shareholders. So that's why I asked the question.

And obviously, Todd, you would have to ask West Creek that question, but I don't think we can be any clearer than the Board is considering the expansion, as well as the strategic alternatives. And we do agree with West Creek's amendment to their 13-D that a proxy contest is not in the best interest of the shareholders.

Yes, I would concur.

Thank you.

Thank you. (OPERATOR INSTRUCTIONS) And we have a follow-up question from Jerry Doctrow with Stifel Nicolaus. Please go ahead.

No one else is going to jump in, I'll come back. I just had one other thing. A question came up with an investor the other day or so. In terms of thinking about sort of free cash flow from your business, I don't know the exact number. We have down for you and for everybody else kind of in the 400 to $500, per unit per year kind of CapEx, maintenance CapEx kind of number. When you think about your budgets, there's obviously other things that are more sort of outside the, more in the reserve for replacement category than sort of the typical kind of paint fix-up that's in the $500. Is there, if I was thinking about this like an appraiser or whatever, is there sort of a reserve replacement that we should kind of be thinking about or budgeting for?

Jerry, I'll tell what you we budget. Our 2008 budget for recurring CapEx is $3 million.

Okay, and is that -- that would include things like sort of the more extensive, more out of the usual, like heating systems--?

That's normal, preparing apartments for new residents, not a new roof, not HVAC, nothing, not refurbishment, this is typical ongoing CapEx in our properties. It's $3 million and on a unit basis, we're consolidating, I guess it's about 6600 units. So it's about $455 per unit per year.

And any sense of what that sort of nonrecurring stuff is, sort of the roofs or refurbishments or whatever, obviously--?

In this quarter, the CapEx, again, it's going to be project by project. This year, this quarter, I think we had 1.6 million for the IT systems and then 700,000 for nonrecurring CapEx this quarter.

And that's a good representative, about 750,000 per quarter and, as mentioned, the $3 million figure is looked at as really it's replacement, reserves, and maintenance.

Okay. All right, thanks a lot.

Thank you.

Thank you. And we'll take our next question from Todd Cohen with MTC Advisors. Please go ahead.

Yes, Larry, earlier on the call you referenced a point in time, I think it maybe was a few weeks ago that you indicated it was a very high number of move-ins. Could you, could you refresh me on that, again?

We've had actually last week we had a very good move-in. The first week of February, last -- actually last week of January and the last week of February were the two highest weekly move-ins I can remember within probably the last six-plus months. Now, it's not recurring every week, but it is in those two weeks, but I would say what's -- what I'm encouraged about is, we had seven move-ins last week at Canton Regency, we had five in Trumble, we had nine last month in Villa Santa Barbara, so it's -- again, I'm not trying to give indications of 2008. What it suggests to me is across the country, we're not seeing a housing meltdown impede our business. We have selected markets. We talked about Florida. We have a Detroit market, a very difficult market. We have a couple of challenges in California. Otherwise -- but even in California, we had a great month last month in villa Santa Barbara. The key to the success is fundamentals. It's our, it's our processes, with our outreach, our calls, our call banks, our lead generation. It's blocking and tackling. It's staying on top and focus.

We began last summer, and we've spoken about this before, how we classified our portfolio in three color zones. Red zone, yellow zone and green zone and we have a SWAT team that is on site working the resident properties, that's any property below 85% occupancy and it's effective. And the key to this business, is number one, trying to be diligent in acquisitions, buying properties in markets with key demographics and limited competition, and secondly, having the right people on site, the marketing staff, the -- all the onsite staff are involved in it, as well as regional and corporate support and focus and giving people the tools. And I mean we all wish we were 95% occupied. We're not. But I would tell you in this environment, we're raising our rents. We're moving people in. We're dealing with attrition. We're looking at higher levels of care. We're looking at home healthcare, and I think the fundamentals continue to be sound.

Great, thanks.

Thank you.

And it seems we have no further questions at this time. I would like to turn the call back over to Larry Cohen for any closing remarks.

Well, we thank everybody for your participation today and look forward to speaking with you shortly. Thank you very much.

Thank you. That concludes today's conference. We appreciate your participation. You may now disconnect.