Sonida Senior Living Inc (SNDA) 2008 Q4 法說會逐字稿

Good day and welcome to the weapon Capital Senior Living fourth quarter 2008 earnings release conference call. Today's conference is being recorded. 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 without limitation to, the Company's ability to find suitable acquisition properties at favorable terms, financing, licensing, business conditions, risks of down turns in 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 report filed with the Securities and Exchange Commission.

And now at this time, for opening remarks, I would like to turn the conference over to Mr. Larry Cohen. Mr. Cohen, please go ahead, sir.

Thank you. I'm pleased to welcome everybody to Capital Senior Living's fourth quarter and full year 2008 earnings release conference call.

Our communities offer seniors quality housing in well appointed buildings with supportive services at affordable rates. We made progress during the fourth quarter in spite of the economic downturn. Occupancies held relatively flat as we implemented rent increases and employed sound expense management. We are encouraged by the higher number of move ins and deposits in the first two months of 2009 as compared to the same period in 2008. These results validate our focus on providing affordable, quality housing and care, promoting seniors independence and wellness, while enriching their lives daily. I also want to congratulate all of our associates for achieving a 95.2% resident satisfaction rating in our 2008 surveys. We continue to differentiate our communities as an affordable option, delivering exceptional value to seniors in challenging economic times. Our communities enjoy stable, well established reputations in their markets. Our skilled marketing and sales staff are building relationships and implementing innovative marketing plans to increase our outreach and contacts with referral sources.

In the first two months of 2009, we had 23 more move ins and 78 more deposits than we had during the first two months in 2008. Our disciplined approach to managing expenses and increasing rates is producing positive results. Average monthly rents in December 2008 increased 5.2% from December 2007 and 1.1% from September 2008, while operating expenses, excluding adjustments that will be discussed later by Ralph, declined sequentially from the third quarter 2008. 57 of our communities were stabilized during the fourth quarter with an 88% average physical occupancy rate. Operating margins before property taxes, insurance and management fees, improved to a 48% in stabilized independent and assisted living communities. At communities under management, these include our consolidated communities, communities owned in joint ventures, as well as communities owned by third parties and managed by the Company, excluding four communities with units being converted to higher levels of care, same store revenues increased 1% versus the fourth quarter of 2007, with a 4.5% increase in average monthly rent. Our expense management and group purchasing program limited growth in same store expenses, excluding adjustments to 1.1%, despite increases in utilities and vacation accrual expenses in December 2008. These achievements generate same store net growth of 0.9% from the comparable period in 2007.

The number of communities we consolidated in the fourth quarter increased to 50 from 49 a year earlier. Financial occupancies of the consolidated portfolio averaged 85.5% in the fourth quarter, excluding the four communities with units being converted to higher levels of care, the average financial occupancy in the quarter for 46 consolidated communities was 87%. Average monthly rents were $2506, a 4.2% increase from fourth quarter 2007 average monthly rates. The average age of our resident is 85 and the decision to move into a senior living community, both independent living with supportive services or assisted living, is need driven. Residents typically move from their former residences due to health problems, difficulty in maintaining a home, loneliness, or need for supportive services. Through assisted living or home health care, residing in our independent living communities residents can receive these services at all of our properties. The cost of living at a Capital Senior Living community is typically more affordable than living at home. This is even more compelling today, as many seniors are facing increasing challenges and are seeking value.

While we have seen the affects of the economic downturn impact certain markets, our move ins, deposits, tours and leads generated, continue to be stable in most markets as we execute on the fundamentals, refurbish our communities and utilize state of the art technology to enhance our operations, marketing and services to our residents. In those communities that have been impacted by the economy, we continue to manage our operating expenses and staffing to occupancy levels and there by maintain margins. In addition, we are converting units at many of these properties to higher levels of care, providing more services to residents as they age in place. We have, or are in the process of converting, 207 independent living units in seven communities to assisted living or dementia care. Of these, 80 were converted in 2007. 18 units were converted in May of 2008. 24 units were licensed this month. 20 units are expected to be licensed in the second half of this year and 65 units are expected to be licensed as assisted living in 2010. We opened 101 independent living units in August and 45 assisted living units in November as our newly developed community in Dayton Ohio. Two additional developments are scheduled to open next month. These three communities were developed in joint venture with Prudential Real Estate Investors, acting on behalf of institutional investors and will add 287 units to our capacity.

In Dayton, our community has been well received and sales traffic has been picked up as our focus outreach efforts have expanded our professional referral sources. Recent open houses at the Perrysburg and Richmond Heights communities that were both scheduled to open April 1st, were well attended with approximately 400 to 500 visitors and sales traffic has been brisk at both communities. The communities have been enthusiastically received due to the attractiveness of their buildings, their amenities and services. In December we announced we were discontinuing further development and expansions until general business conditions improve and we eliminated three related positions. We also announced in December that Jim Stroud's retired for personal reasons, from his daily officer role as Chairman of the Company. Jim is the founder of the Company and we are pleased that he will continue to serve the Company as Chairman of the Board of Directors and maintain his Company office and administrative assistant.

In January, we announced a stock repurchase plan of up to $10 million of common stock. The timing and extent to which we repurchase stock would depend on market conditions and other corporate considerations. We believe the stock repurchase program is a prudent use of our capital and demonstrates our confidence in the long-term value of Capital Senior Living. We are profitable, generate positive cash flow and currently have the cash available to fund this program. The senior housing market is highly fragmented with a number of operators being financially challenged with limited access to capital. New supply is severely constrained and demand will continue to grow as seniors age and their needs increase. We believe that we are well positioned to take advantage of the current economic downturn to expand our base of operations and profit from the economic recovery. We have an established operating platform with geographic clustering and we provide multiple levels of care to seniors. We have a proven track record with same store average annual rent growth of 6.1% and same store annual net operating income growth of 13.7% since 2003. Our stabilized operating margin is currently 48% and we have successfully integrated dozens of acquisitions into the Company since the end of 2005.

We have a solid balance sheet with no significant loan maturities until the third quarter of 2015. We enjoy strong institutional relationships and have a stable and seasoned management team with 171 years of combined seniors housing experience. Capitalizing on opportunities in this downturn should allow us to gain sustained, strong, competitive positions within our geographic clusters and maximize shareholder value as the economy stabilizes.

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 2008.

Thanks, Larry. 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 will 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 resident revenue of $43.2 million for the fourth quarter of 2008 compared to resident revenue of $42.7 million for the fourth quarter of 2007, an increase of $0.5 million or 1%. The number of communities that we consolidated on our income statement increased by one from the fourth quarter of last year from 49 to 50, with the addition in January, 2008 of one leased community. Financial occupancy in the consolidated portfolio, as Larry said, averaged 85.5% for the quarter with an average monthly rent of $2506 per occupied unit. Excluding four communities with units being converted to higher levels of care, financial occupancy of the consolidated portfolio was 87%. The average physical occupancy for 57 stabilized communities, excluding four communities with units being converted to higher levels of care, was 88%. Revenues under management were $55.7 million in the fourth quarter of 2008 compared to $55.9 million in the fourth quarter of 2007. There were 64 communities under management in both the fourth quarter of 2008 and the fourth quarter of 2007. At communities under management, excluding the four communities under going conversions, same store revenue of just 1% versus the fourth quarter of 2007 as a result of 4.5% increase in average monthly rent.

Operating expenses increased by $0.8 million, or 3%, from the fourth quarter of 2007; as a percentage of resident healthcare revenues; operating expenses were 63.5%. Operating expenses for the fourth quarter included approximately $0.4 million of casualty losses and real estate tax adjustments which apply to prior periods. Excluding these items, operating expenses would have been 62.5% of revenues for the quarter. General and administrative expenses of $3.9 million were approximately $1 million higher than the fourth quarter of 2007. We announced in December that we are discontinuing further development when the last two communities are completed and incurred approximately $0.6 million of separation costs as a result. We also wrote off approximately $0.2 million of preacquisition costs related to projects that will not proceed. As a percentage of revenues under management, excluding these items, general and administrative expenses were 5.5% in the fourth quarter of 2008.

Facility lease expenses were $6.3 million in the third quarter of 2008, approximately $0.2 million higher than the fourth quarter of 2007 reflecting 25 leased communities this quarter versus 24 in the prior year period along with increases in contingent rent. Depreciation and amortization expense increased $0.3 million in the fourth quarter of the prior year as a result of capital improvements at certain of the Company's owned and leased facilities, along with depreciation incurred on new information systems, which became operational on January 1st, 2008. Adjusted EBITDAR for the fourth quarter of 2008 was approximately $13.7 million compared to $14.9 million in the fourth quarter of 2007 and adjusted EBITDAR margin was 28.5% for the period. Interest expense of $3 million in the fourth quarter of 2008 was $0.1 million less in the fourth quarter of 2007, reflecting lower debt outstanding due to principle amortization.

The Company reported a pretax loss of approximately $0.4 million in the fourth quarter of 2008 compared to a pretax profit of approximately $2.6 million in the fourth quarter of 2007. Fourth quarter 2008 results include several and frequent non operating items such as separation pay, casualty losses, write off of free acquisition cost and property tax adjustments. On an adjusted basis, the Company earned a pretax profit of $1.2 million in the fourth quarter of 2008, compared to a pretax profit of $3 million in the fourth quarter of 2007. Adjusted net income was $0.8 million or $0.03 per diluted share in the fourth quarter of 2008 versus adjusted net income of $1.8 million or $0.07 per diluted share in the fourth quarter of 2007. Adjusted cash earnings, which are simply adjusted net income plus depreciation and amortization, were $4 million or $0.15 per share in the fourth quarter of 2008 versus $4.8 million or $0.18 per diluted share in the fourth quarter of 2007.

Capital expenditures in 2008 were approximately $8.1 million, including $4.6 million of recurring capital expenditures, $3 million of major projects or renovations and $0.5 million of information technology. Recurring capital expenditures were approximately $690 per unit in 2008. We anticipate approximately $1 million per quarter of recurring CAPEX throughout 2009. The Company ended the year with approximately $25.9 million of cash and cash equivalents and approximately $185.8 million of mortgage debt, all at fixed interest rates averaging approximately 6.1%. With the exception of a single $4.8 million mortgage. maturing in September of 2009, the next closest debt maturity is July of 2015.

We would now like to open the call for questions.

(Operator Instructions). Our first question today will come from Jerry Doctrow with Stifel Nicolaus.

Good morning. As I have a handful of things. I guess maybe to start just trying to understand the overall marketing environment, rate environment a little bit better. I think you had talked about on a same store basis it was about 5.5% rate growth. Can we get a better sense of the quarter-over-quarter growth? Larry, you talked about deposits and move ins being up. You've also been adding units. You have stuff in new developments. A little more color on what you are seeing on the marketing, try to think of it on the same store basis.

Sure. On the rent increase, from September to December the average monthly rate is up 1.1%. That gives you sequential. It is 5.2% year-over-year. And the rate increases in the first quarter are tracking pretty much what they have been historically.

Okay.

As far as the numbers that we recite on the deposits and move ins, those are same store numbers. We did not include the developments or the lease that came on in the first quarter of ' 08. All of our stats are on an apples to apples, same store basis, same unit count and same number of properties.

In terms of any color and customer thinking. People have settled down. You are not seeing as much issue on housing market and stock market. More of an issue in the fourth quarter than the first quarter, any additional color there?

What we saw last year, our occupancies fell in the first two quarters. We saw occupancies level off, actually improve in the third quarter and stabilize in the fourth quarter. December we saw a little bit of a slip, very slight. It was a combination of our traditional holiday season and some difficult weather. If you recall in '07 and '06 we had pretty mild Decembers. %This year we have had a much more typical winter in December. We saw an increase in occupancy, move ins, deposits in January over December. February, I think we have seen pretty good momentum throughout the country and our look towards March on our leased units, which are deposits, are moving upward.

I think that we are being cautious about this year. We are expecting occupancies for the year to probably remain flat in this economy. But I think what we are finding is that there is really not a lot of comments we are hearing back from the field regarding the housing market. I think it is something we have been dealing with for a long time as well as the fact that you have pointed out and many of you -- in many of our notes that our portfolio probably enjoys some of the highest concentration in some of the better and more stable housing markets, as well as the fact that many of the markets we are in never had the bubble on valuations.

Are you doing anything on incentives or anything different on incentives?

In those markets, we have one property in Florida where we are having conversions. We have a few properties in California, a property in Detroit which are probably our three or four most challenging markets. There, what we will do, is we will look at premium pricing. Basically rather than just having incentives. We look at each unit and try to determine a pricing structure. Taking those units which may have been in inventory the longest, maybe furthest from the dining room, maybe has a poor view and use those as incentives. As you can see on the rent increases of 5.2% year-over-year, we are not in this year, we are budgeting 3% to 4% rent increases for 2009.

And then let's see. On the share buy backs, can you tell us what you have bought before, how much is remaining authorization as of this date?

Jerry, we actually just began that share buy back program at the end of January. We were active in the market up until 30 days prior to our earnings release. We have a corporate policy where there is no trading done by any employees or management within 30 days of an earnings release. We have been under way for a short period of time. We have a $10 million authorization but that is probably a multi year goal. We don't plan to buy back $10 million of stock in 2009. We plan to give a specific report on that in our first quarter Q. But at the present time we are just beginning that program.

That's fine. I wonder -- you touched on some of this. Maybe we can go through it a little bit more detail on the conversions and on the development -- and on the development. Again, they are not in same store. They affect the overall earnings. A little bit more color on timing of that, what you are -- your lease up period is, the conversions, start having impact against on average rents because you are substituting AL units for IL units. Any more color for an estimating standpoint that you can give us on that stuff?

Sure. As you look at -- we were just licensed in California for 24 units, in Santa Barbara. We will start to see those units be occupied during the course of the year. If you look at our average assisted living move in per property, we have been averaging about 2.5 move ins per month for assisted living. It is probably a 10 month or so fill rate to absorb that. If we were fully absorbed and obviously we will have a vacancy factor there. We will see it gradually throughout the year. Another license will be received in Illinois later this year for another 20 units. Again, we will probably see more of that impact in 2010. Veranda Club and Crown Point, which are two conversions that will have more construction related work, will begin later this year and we will not see the impact until they are licensed in 2010. 45 units in Veranda, in Boca Raton, Florida will take around 15 to 20 months at the normal pace of fill on assisted living and the Crown Point conversion will be a 10 month fill or so. Most of the impact will be 2010 and hopefully fully impacted by 2011.

How many was Crown Point?

That's 20 units.

The development again, you touched on this, I think somehow we were thinking they were further off. The -- was it Dayton you just opened?

Yeah, Dayton is opened and the Perrysberg and Richmond Heights properties are opening April 1st. We are working on a license right now. Those are joint ventures. As far as the impact of the Company, we have been earning a monthly fee for the lease off of those buildings, started six months before opening. They started to hit our income statement in the third quarter. Those two properties in '08. That will convert to a management fee with a floor when they open. As far as the impact on our income statement, we are 10% owner. We will share in 10% of some of the start up losses. We will start to see the impact on the equity line in the second quarter because of the opening in April and we will expect that will grow into a positive position as we move throughout the year.

And any sense of what the -- for your own planning purposes what is the equity loss that starts off or rounds off per building?

Jerry, we actually see that our equity income will remain positive we believe throughout 2009, but the amount we have been earning will be close to a net break even in the second quarter as we absorb those losses and then get back into a growth position in third and fourth quarter.

We don't actually see our equity income going negative but will be off setting the income we are earning from our current joint ventures by the start up losses of the 2 new developments. You are not guaranteeing any cash flows or performance for those properties. You are just sharing your 10 percent.

We do have an operating deficit guarantee. There are quite a bit of reserves in the funding as well as additional contingencies, we don't expect that that will be used. And then our partnership agreement we have a mechanism to be repaid. If we have to fund deficits, there is a mechanism to repay those amounts.

Is it capped or do you have an open ended operating deficit guarantee, beyond the reserves?

It is an operating deficit guarantee on deficits on cash flow. Our model suggests that the cash flow position that the properties will break even somewhere in the 50 to 60 person occupancy range. What is interesting that -- looking at the contingencies that were in the models for the construction costs we came in under that total cost; we have additional reserve from not having used those contingencies. We constantly monitor this and we feel we have sufficient reserves for the lease, based on the pace we are seeing in Dayton and what we anticipate from the other two properties.

Richmond Heights is suburban Cleveland?

Right. We are getting deposits. As I said, we had an open house two weeks ago with over 500 people, many of which are referral sources and there has been a lot of enthusiasm and a very positive response in the market.

The last thing and I will jump off. Larry, you had talked about some about the strategy. There are going to be opportunities potentially in this market, relatively strong cash position stuff. A little more color perhaps on your thinking of strategy. Are you seeing deals now? Do you expect deals in the future? What kinds of things would you do? Would you be a manager, a buyer? A little better thinking of how you see this playing out.

Sure. Our strategy is to really use this economic situation with our position to enhance our cash flow, enhance our shareholder value. We find that a prudent allocation of capital for us has been to really focus on management contracts or the joint ventures, where we invest typically 10% of the equity, as well as having a share in the performance of those properties and earn management fees and have incentives to promote. We don't look at buying properties into the Company. We look at management agreement in joint ventures. Based on the capital markets today, based on our cost of capital, I think the REITs will be less active in the near term than some other investors that we have strong relationships with for joint ventures and I think we are also very well positioned and this historically has been a strong growth aspect of the Company, is coming in and managing companies for owners and lenders particularly when they have operators that are having difficulty. whether operationally, structurally, reputaionally or financially.

Are you seeing deals yet? Is this something on the horizon? Anymore -- any particular type of property that you have more preference on?

I really don't. There are things in the market -- typically we have confidentiality agreements.

I'm looking for broad type.

Broad type, it is a combination, as we see independent living. We see assisted living. We see a variety of product, most of which are being shown to us by lenders that are looking to either sell the assets or bring in new management.

Okay. Thanks. I will jump off.

The other thing, Jerry, also, we want to focus on the geographic concentration we have to build into our existing clusters.

That's especially helpful.

We'll go next to [David Cohen with Athena Capital Management].

Good morning. I wanted to talk a little bit about cost controls and operating cost management. There is a comment in the press release about expenses due to separation costs in the quarter. Can you give us a sense for what the overall employment level at the Company is right now versus whenever, six months ago, a year ago?

David. It is Ralph. We operate this Company with over 4000 employees with a home office base of about 50 employees. We are very dispersed in terms of our geographic employee population, but we have about 4000 employees, total that we operate with about a 50 person headquarter staff. As Larry said, in December we announced that we were going to stop developments once these two new projects, that will open in April, were complete. We reduced our development team from four employees to one. We had three lay offs in the month of December, along with the Chairman of the Company, Jim Stroud resigning his executive position though retirement and staying on as Chairman of the Board. We have four fewer employees now than we had a few months ago. We booked, in the fourth quarter of 2008, a total separation cost of $6240,000 on our non-GAAP reconciliation schedule. We are presently operating with about 50 people and we anticipate that that's a good base from, hopefully, we will add additional communities under management in 2009.

Also in the field we have approximately 3800 employees across our communities. What we had done -- a majority of those are hourly employees. Our philosophy has been to -- we have a methodology with spend down sheets which are like [impress] accounts as well as staffing patterns that tie to the occupancy. Every month, every building, every regional is reviewing, at the 25th of the month the billing for the following month and then we actually look at our staffing, our purchasing, our food costs specifically and we budget and we actually will adjust the actual costs to the actual physical occupancy, which is why we continue to for example, in the fourth quarter year-over-year only have a 1.1% increase in expenses on the same store basis after sequentially they were down. The other benefits we have in store was a significant group purchasing program that began in the middle of 2006. We have been saving about 10% on food. We also use that group purchasing for a variety of suppliers, 200 suppliers that are serving our communities. We also -- with deregulation of electricity in Texas, have contracts in our Texas properties are now looking at negotiating new contracts in other states. We have been very vigilant on our insurance costs and our savings there year-over-year continuing to benefit the Company. So -- we are looking at now ways, using technology, the internet, new programs for corporate replacement, waste management, communications, cable TV, further energy programs to continue to drive down the cost of our operations on a go forward basis. A number of my other portfolio companies, when they have announced any sort of cut backs in terms of staffing, have paired that with cut backs in executive compensation, at least temporarily. I'm wondering whether you have done that yet and if not, whether you are contemplating doing that? The executive compensation of the Company is typically controlled by contracts with the executives. The compensation committee constantly reviews, has surveys of other companies in our sector and looks at the competitiveness and comparability. One thing we have always had as a compensation structure is performance based compensation, with goals for the executives that tie to the performance of the Company, as well as individual and corporate goals. And I expect that that will continue so that as we look at -- I know from my personal experience -- my compensation in 2008 was lower than 2007 and again it is -- everything is tied to specific performance goals that tie into the business plan that is reviewed with the board. Are they tied into the performance of the stock price? That's a component as well, yes. If you look at the proxy, by the way, David, there is a very good description, in detail, in our annual proxy that shows all the elements and how that performance based compensation is structured. If I look back, I know there was an RSU grant in January. I didn't get a chance to look back at previous years. Was that RSU grant similar to what it has been in previous years?

Yes, actually we had a -- the previous grant matured January 2nd and there were replacement grants made. The actual value of those grants was significantly less than it was before. Even though the share count was up somewhat, the share price was down so much that we are actually amortizing less stock based compensation going forward than we would have previously based upon the new grants.

Okay. Thank you.

(Operator Instructions). We will now take a question from Charles Gillman with Boston Avenue Capital.

I know that many of our Associates listen to these calls and speaking as a substantial shareholder, I want to thank the associates for the good work and the sacrifices they have made for the success of the Company. I do have to address a point to the senior management of the Company and to the Board, however, in that the country is in a very deep recession. At most of my portfolio companies, the senior management has accepted a substantial compensation reduction. In particular, I'm very pleased that my portfolio companies when, the senior management takes a substantial cut in their cash compensation and in exchange for a substantial cut in cash compensation, they are awarded an options package or restricted stock package. I'm in favor of that because that aligns the interest of senior management with the shareholders. I do have to say I'm surprised and a little disappointed, in very simple terms, what Capital Senior Living has done, they have awarded a very generous equity package to the senior executives without a compensating reduction in cash compensation. Speaking as a substantial shareholder, I know this decision was made by the compensation committee of the Board and I think many of the shareholders are disappointed in the decisions made by the compensation committee, disappointed that the compensation committee decided to make this substantial equity award without cutting the cash compensation.

Charles, thank you very much for your comments. As I mentioned, the compensation committee looks at other companies in the peer group, has other surveys done for the committee by experts. As I said personally and I think for all the senior management, compensation was lower in 2008 than in prior years. We feel very strongly for aligning the interests for the employees from the on-site executive Directors up to senior management through our stock ran programs and the stock rans this year were sequenced because the fact that we had stock that was fully vested and run its turn. I appreciate your comments. I do think that the compensation committee and management have tried to incentivize everyone in this Company on a performance basis. We have a philosophy to compensate by performance and we think we align the interest of the shareholders, of management and of the Company with the business objectives and strategies and the business plan through the compensation structure. These are not bonuses. These are performance based awards that are earned for performance.

I have another different point to make which is I have spent a lot of time studying your industry and I, for one, am convinced that the only way to earn good shareholder returns in your industry is to have regional economies of scale. In other words, if you have a few assisted living homes here and a few there, a city with a small number, another city with a small number. You are never, ever, ever going to earn good returns for shareholders. I believe that the returns come from having regional concentrations. That is, have a very small number of cities and in each of those cities have a large number of units and the economies of scale to having a large number of units in a few cities include purchasing economies of scale, it includes managerial economies of scale, marketing economies of scale. There is tremendous benefits to playing in a very small number of regions but dominating those regions. It seems to me as a substantial shareholder, shareholder interest are served by the Board quickly moving to rationalize the portfolio and trade in and out of facilities so that, somehow or the other, as quickly as possible, we are a Company that is in a small number of cities, a small number of regions. We dominate the regions. We get the economies of scale and we stop trying to be so spread out. I know this is an interesting time in your industry. There is a lot of turmoil in your industry. I would invite dialogue on that point from management and from the Board.

Thank you, Charles. As I mentioned, we do have concentrations in the southeast, the Midwest and the central southwest. We do have some properties -- we have one in Florida but the rest are southeast or in the Carolinas. Have you been to visit any of the Capital Senior Living properties?

No, I have not.

I invite you to visit one of our buildings. We have a building in Oklahoma city or you can go to a neighboring state. We typically -- I know you follow the business -- if you look at a pure assisted living company, those properties typically average 60 to 80 units, have very different staffing patterns, based on the levels of required staffing under licensure and care. With 69% of our residents being independent living and with our average property averaging about 140 units per property, it is more than double the size of your traditional assisted living property and we are again to converting more levels of care. For example, in Florida taking 189 unit building, having 45 units of assisted and 140 of independent. We continue to perform at the highest margins of the public companies, both in an operating margin perspective as well as an EBITDAR margin. I think your point is very interesting. It is something we look at very closely. In response to David's question, I was trying to be very specific of the initiatives that we do have. We do have a group purchasing program that really benefits all of our properties and we get the benefit of a national Company with regional focus. Also if we look at our strategy and business plan, we are very focused on expanding those -- our presence in those clusters to get further efficiencies.

I will tell you that every month, the 5th highest performer in our portfolio, with the 5th highest margin, over 50% and the 5th highest net operating income per unit, which is an important metric to me, is the property in California. So we have regional oversight. The regionals office in the buildings. They typically can commute within two-hours to their region and many of them are much more closely aligned to the regions. I think it would be helpful and I invite you to visit our properties and look at the staffing with independent living. We have about 0.23 full time equivalents per unit versus assisted living that has 0.5 per unit and higher levels of nursing care to be 1 to 1. I think if you look at our business model with a large concentration of independent living. We do have third party home care agencies in the buildings paying us rent to provide additional supportive services to residents so we can accommodate a frailer independent senior. We are achieving and on a comparison basis, we continue to achieve, margins and we always look to improve those numbers. Looking at a variety of different technology and purchasing sources to bring those costs down even further but just looking historically, we seem to continue to experience very high margins. A lot of it has to do with our operating philosophy as well as the physical aspect of our buildings.

Again, I appreciate how hard the associates are working and I'm grateful to the associates for that. I think I will take your points under consideration. You know, I do believe that, even in the area of different levels of acuity, almost all of the experts on this industry, the sell side analysts, the buy side analysts, the industry analysts, the investment bankers in the industry, I believe there is a consensus among all those players that, despite everything you have said and all the valid points you have made, that over the long-term shareholders make the most money in tight regional concentrations and I respect very much that you have a property all by itself away from a regional concentration in California that is profitable and I'm grateful to the associates that are responsible for that. But I don't believe an exception proves the rule. Again, I invite comments from other experts that may know the industry but I would say that the long-term future of this Company, from my perspective and shareholder, has to be as a company with very, very tight regional concentrations. As profitable as you are with a diverse, geographically dispersed portfolio, I believe the Company can be and will be much more profitable when the portfolio is paired down to a very, very tight geographic concentration. I think you provided a good forum on this call. I want to hand this over to another caller to make another point.

I want to repeat what we said in my comments and our division and our strategic plan for this Company, I just want to reemphasise that we are looking to grow within our geographic clustering. I think you and I agree on a lot of the issues you raise. I was pointing out that we have a management structure that has proven efficiently how we operate. I invite you to go on the website and look at the map. I think you will see quite a bit of concentration presently in Texas, where we have probably have 30% of our portfolio in the state of Texas. We have large concentrations in Indiana, Ohio, Illinois, the Midwest. Another large concentration in the southeast. I think we agree and we are getting some of the benefits of that clustering throughout the large majority of our portfolio.

(Operator Instructions). Next to [Todd Cohen] with MTC Advisors.

Good morning. Good morning. Hey Larry and Ralph. I have not met Charles and don't know him but I tend to agree with some of his comments regarding the geographical clustering . It is hard to take you as seriously as I would like to in your efforts to rationalize your discussion regarding these regional exceptions. Business is business and I just -- I'm not sure that I -- that attempting to rationalize that does you a whole lot of good. I'm sorry. Do you have a question. I'm going to have a question. The other part -- I will also -- I will confirm what the other -- caller has done. I have not been on one conference call that I can recall in the last three months, where the executives have not discussed extraordinarily measures that need to be taken in this environment as it relates to running their businesses differently. Almost all calls start by suggesting that there is nothing they can do about the environment but what about -- but it is what about -- it is what they can do within the four walls of running their businesses. I have not really heard that here. I'm surprised there is not substantially larger focus on really getting these expenses down dramatically as it relates to the current run rate.

You have basically said in your remarks -- maybe it was in response to a question -- that you expected comps to pretty much remain flat in this economy and I would say -- if you are able to do that and I'm hoping that you are able to do that, that would be wonderful. This is an extraordinarily difficult environment. On the flip side, I really haven't heard what I thought I was going to hear today, that you are under going some significant process to get these expenses way, way down by the elimination of people or services that some of your existing staff will just have to pick the reins up on. It is deeply concerning. It makes it seem as though you guys have not come to the realities of what is going on out there in the world. Just lastly, on the compensation side. I did go back and reviewed the proxy from May of 2008 and there is so much there in the way of different types of compensation, it is almost hard to understand. You just indicated that the stock awards were fully vested as it -- Can I correct -- the new awards vest over a three-year term. But you referenced the old awards having just been fully vested. Yes. That means that that stock is now free and clear for you to do whatever you want with it. You own that stock now. Free and clear, correct? Yes, correct. So now you -- have been provided with more stock awards that seem to be pretty substantial. I know the stock price is lower but maybe -- I know that stock performance obviously is part of your compensation performance measurement but do you realize your stock was down -- the stock was down 70% in 2008. December 31st, ' 07 it was $9.93. It ended the year at $2.98 and it is now $2.50. We are having substantial value destroyed and you guys are getting what appear to be very substantial compensation in this environment and I don't -- I don't know -- I know who is on the compensation committee but I don't know how long they have been on the compensation committee. These awards just seem out of touch with reality given the destruction that has occurred to your shareholders. Do you have a question? Yes, please. I assume that was a question that you asked. First of all, we can't control the stock market and the stock market in the last quarter because I think our stock was in the $8 to $9 range through about the third quarter of last year. Obviously in October to December, the market experienced one of the most severe downturns ever. What the compensation committee and what management attempts to do is to have a fair compensation structure. We look at our peer group. We look at other companies. We have consultants that come in periodically and advise us and we believe it is very helpful to have restricted stock that does not vest, which was approved in the -- shareholders in the proxy in 2007 we had a vote by our shareholders for a new plan that was adopted and we again are looking for ways to retain people.

What is interesting about the health care business, this business may not be like other companies in your portfolio. We are still cash flow positive. We are making profits. Even though we expect to keep our occupancy flat, we are expecting, and our compensation and awards are based on improving revenues, EBITDAR and performance on a comparative basis year-over-year. We are running this business as a business that is profitable, that is cash flowing. We are looking at ways to take advantage of our position in this industry, with a very clean balance sheet and cash, strong institutional relationships and strong track record and reputation that we can take advantage of some of those less fortunate operators or companies, to grow in our markets. This is a very, very interesting time for certain operators with established platforms to really move in a very positive direction in this environment. So we think we are well positioned. We are actively operating our buildings and I appreciate the comments about the wonderful staff we have on-site and all the support that is given regionally and corporately. The Company is also focused on growth and we want to make sure we have the proper resources to provide the requisite diligence and under writing to manage our buildings. Many of our buildings are licensed. We have requirements we have to fulfill, both to serve our residents as well as under the state regulatory requirements.

If you look at our G&A costs and absolute dollars, it is much lower than other companies. We have looked at other private companies on their G&A as well. We are running about 5.5% of G&A of revenues under management. We always look to do better but we are not -- we don't believe we are a Company in distress. We think it is important -- one of the comments I hear back from our on-site staff repeatedly, is the comments from our residents and family members who are very comfortable living in a Capital Senior Living property because of the stability of this Company and when you look at other companies, public and private, and some of the news reports out there about bankruptcies, investigations, other types of issues, we are benefiting because many of those operators are losing staff and residents who don't have the stability that they find in Capital Senior Living. We think we are well positioned. We try to treat people fairly. We try to have a compensation structure from on-site to the corporate office that is performance based, that aligns the objectives of the Company both organically as well as other growth drivers and only to reward people on performance. Larry, I think -- look, you guys have done a respectable job of running your properties. The point I'm making -- you also have to remember -- that all of your employees, including yourselves, are lucky to have jobs right now -- but the compensation plan that you have established makes you guys look a little bit out of touch with reality. If your stock was $4, $5, or $6 or a higher price than where it is, you know things might be a little bit different because you would have out performed the market substantially. But between you and I, the market is not down 80% in the last 14 months. It is down a lot but not as much as your stock price. It just makes you guys look out of touch. I have spoken to many and have looked at many proxies and have spoken with many executives, guys on compensation committees and I haven't seen many companies that pay a cash bonus on a quarterly basis, based on the quarter. That seems awfully short sighted for a Company in the real estate business. That is contractual. I would like to say if you look at the stock performance of our Company, compared to the peer group, we out performed the senior housing group. Even though we were down, we don't disagree, 70%, all of these were taken into account and as far as quarterly bonuses, those provisions are contractual with executives, have been so since the -- Larry. Because it is a contract, doesn't make it appropriate. There are a lot of contracts out there that have proven to be very inappropriate, given what you've seen happen in many different industries across the board. I'm just saying, as an owner of your stock that is fairly substantial -- I think you are hearing this from other people -- you guys seem a bit out of touch with reality and I want you to do well, but not at the expense of shareholders and that's really all I have to say. Thank you,

There are no further questions at this time.

Well, I want to thank everybody for participating in today's earnings call and we look forward to having further conversations with you as we move through the year. Thank you very much. Have a good day