Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Brookdale Senior Living, Inc (NYSE:BKD)

Q3 2011 Earnings Call

November 4, 2011 10:00 a.m. ET

Executives

Ross Rodman – SVP, IR

Bill E. Sheriff – CEO

Mark W. Ohlendorf – Co-President and CFO

T. Andrew Smith – EVP, General Counsel and Secretary

Analysts

Kevin Fischbeck – Bank of America Merrill Lynch.

Jerry Doctrow – Stifel Nicolaus

Rob Mains – Morgan Keegan

Frank Morgan – RBC Capital Markets

Bryan Sekino – Barclays Capital

Operator

Good morning and welcome to Brookdale Senior Living Third Quarter Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. (Operator Instructions) Thank you.

I will now hand the call over to Mr. Ross Rodman.

Ross Rodman

Thank you, Rachel, and good morning, everyone. I would like to welcome all of you to the third quarter 2011 earnings call for Brookdale Senior Living. Joining us today are Bill Sheriff, our Chief Executive Officer and Mark Ohlendorf, our Co-President and Chief Financial Officer. Also present is Andy Smith, our Executive Vice President and General Counsel.

As Rachel mentioned, this call is being recorded. A replay will be available through November 11 and the details on how to access that replay are in the earnings release. This call will also be available via webcast on our website www.brookdaleliving.com for three months following the call.

I would also like to point that all statements today, which are not historical facts, may be deemed to be forward-looking statements within the meaning of the Federal Securities laws. Actual results may differ materially from the estimates or expectations expressed in those statements. Certain of the factors that could cause actual results to differ materially from Brookdale Senior Living’s expectations are detailed in the earnings release we issued yesterday and in the reports we filed with the SEC from time-to-time. I direct you to Brookdale Senior Living’s earnings release for the full Safe Harbor Statement.

Before turning the call over to Bill, I would like to let everyone know that we’re holding an Investor Day in New York City beginning with the dinner on the evening of November 17 and continuing the next morning through noon. If you like more information, please e-mail me or call me using my information on the earnings release.

With that, I’d like to turn the call over to Bill Sheriff. Bill?

Bill Sheriff

Good morning and welcome to our third quarter earnings call. We feel good about what we accomplished during the quarter. We adjusted our marketing efforts to accommodate a sluggish market, managed our cost and made tremendous progress integrating Horizon Bay in addition the 30% to our portfolio.

On the revenue side, as we described last quarter, we tweaked some of our pricing and use of incentives during the second quarter to drive move ins as we undertook to mitigate a more challenging environment.

We were successful that we’re establishing census growth and during the quarter, we increased our average census by 80 basis points from the second quarter.

Without HCP list assets, avenue in September as part of the Horizon Bay transaction, we actually increased the sequential average by 90% basis and for May which was the low point for the year to September increased the average by a 140 basis points.

We had strong improvement in our average census from the second quarter in both our retirement center segment about 110 basis points and our pre-standing assisted living segment by 100 basis points.

Encouragingly, we had an increase in the number of inquires versus last year, in the third quarter have over a 10% increase in the number of initial visits versus Q3 of 2010.

This carried on into October and we had a gain in the average census again. Going forward we expect to see continued census improvement of staying within the boundaries of reasonable competitive price.

The third quarter was also good for entry fee sales. We closed on 88 sales this quarter resulting an over $10 million of net entrance fee proceeds. Q3 was the first quarter this year that our IL live ins exceeded the IL move outs for the entry fee communities.

Meanwhile, our senior housing rate growth well down from Q2 was still nicely positive. Our quarter-over-quarter same community senior housing rate growth was 3.3%. If you take out the impacts of the rugs for skilled nursing rate, that rate growth was 2.2%. This compares favorably to the net rate growth number of 1.6%.

Our ancillary services business, which does not include skill nursing, has experienced a temporary leveling-off of growth. It has hit a plateau because outpatient therapy has been rolled out to nearly all of the communities in the Brookdale portfolio makes economic sense for the Horizon Bay acquisition. And while the home health business geographic growth opportunity remaining, agency acquisitions have slowed as we placed the need to acquire in CON states, which are more difficult and time consuming.

Despite the January 1, 2011 Medicare rate decreases, which negatively impacted both outpatient therapy and home health. Ancillary services revenue increased by 2.5% over Q3 of 2010 with growth coming from increased home health census volume. The expense side was also negatively impacted by the CMS procedural changes.

Our house space initiative continues to make progress, we now have four markets surveyed and certified which means we can start providing services and one market is already profitable and the second at break-even. Two markets are preparing to be surveyed. Growth low return as our ancillary services organization prepares to rollout services into the Horizon Bay communities.

We have initiated efforts to open in three to four markets per month starting with large communities in those markets. Each startup takes about 90 days to create the space and hire sufficient number of therapist and home health nurses. Overall, the rollout plan is expected to take two years to complete.

Beyond the normal recruiting issues it does take time to effect the transition from provider agreements as well as deal of onsite survey issues in some states. We are encouraged by the openness and support given at the local communities, with regard to bringing these services in-house.

All in all, in the quarter we produced $65.6 million of CFFO, excluding $5.5 million of integration and transaction related cost related to Horizon Bay. This was nearly 10% higher than Q3 of 2010. The biggest contributor was the rate growth in senior housing. At the same time the resident revenue and management fees grew by 3.6% we held our margin level.

I will not turn the call over to Mark at this point to provide more details on the quarter.

Mark Ohlendorf

Thanks, Bill. Our reported CFFO in the quarter was $0.49 a share, excluding $5.5 million of integration and transaction related cost, our CFFO was $0.54 per share.

Looking at the details of our operating performance for the quarter compared to Q3, 2010, same community revenue increased 2.7% with average revenue per unit up 3.2%, occupancy was down 50 basis points and expenses increased 3.4%.

Breaking the same community data down further, our senior housing revenue grew by 2.7% with revenue per unit increasing by 3.3%. Our same community occupancy well up 80 basis points sequentially was down by 50 basis points compared to Q3, 2010.

Senior housing expenses grew by 2.8%, below the 3% to 3.5% range that we had projected. Our labor cost, our largest expense item grew by 2.9% a combination of 1.9% increase in average wage rates and a modest increase in labor hours.

Food at 6% of our cost structure was up 3.4%, below overall food inflation as our purchasing and menu management systems assisted our team in controlling costs. Utilities 7% of our costs structure were actually down slightly, while this expense is correlated to whether our investment in revamping our communities is paying off.

Excluding the ancillary services business, same community senior housing facility operating income grew 2.6% in the third quarter.

General and administrative expense excluding non-cash stock based compensation and integration and transaction related costs was approximately $28 million, which was 4.3% as a percentage of total revenue under management.

Turning to the balance sheet, we continued to strengthen our financial position and improve our flexibility. As we previously announced during the quarter, we closed the seven year $437.8 million first mortgage loan with Fannie Mae. Secured by 44 communities, 75% of the loan bears interest at a fixed rate of 4.25% and the remaining 25% of the loan bears interests at a variable rate of 30 day LIBOR plus margin of 182 basis points.

The loan is based on a 55% loan-to-value ratio and we have the right to substitute properties important for our Program Max initiative and the ability to more fully utilize the collateral base when the asset value is increased.

We use the proceeds of the Fannie Mae loan along with cash on hand to refinance or repay $445.2 million of mortgage debt, which was schedule to mature in February and August of 2012. We do not have any debt maturities in 2012 except for normal scheduled principal amortization. We ended the quarter with $39 million of unrestricted cash. We had $35 million of outstanding borrowings on our line of credit, which reduced primarily to close the Horizon Bay transaction. At the end of the quarter, we had cash and undrawn commitments on our line that together totaled $230 million.

Looking at the CapEx, which is included in our CFFO calculation, our spending in Q3 for maintenance CapEx was $8.7 million. Year-to-date we’ve spent $25 million on maintenance CapEx for our communities.

Next, we are excited about the Horizon Bay acquisition. We added 91 communities with over 16,200 units increasing our unit footprint by over 30%. We’ve talked before about the structure and the transaction, 21 of those communities are in a RIDEA joint venture with HCP, we tripled at least 12 communities from HCP and the remaining 58 Horizon Bay communities are third-party managed.

We received significant management fees, all of the ancillary services cash flow joint venture ownership returns on some of the assets and the operational cash flow on the leased assets.

We closed the Horizon Bay acquisition on September 1 and there is one month of those acquired results in our Q3 numbers. Note that GAAP revenue increased in part due to the $37.2 million of reimbursed cost incurred on behalf of managed communities, which has an equal offsetting expense item.

Beyond the integration cost that we’ve incurred the investment to-date has been $10.7 million for the initial purchased consideration of Horizon Bay and $13.7 million for the 10% joint venture interest related to RIDEA at 21 communities.

In mid August, our Board of Directors approved to share repurchase program that authorizes the company to purchase up to $100 million in the aggregate of Brookdale common stock.

The company is an insider to itself, so there are some limitations as to when we can buy along with other restrictions such as daily volume purchase limitations. During the third quarter, the company purchased 1,217,100 shares at a cost of approximately $17.6 million, our weighted average price of approximately $14.44 per share.

Finally, on our last call we gave guidance that 2011 CFFO will be in the range 210 to 220 for the year, excluding integration and transaction related cost. We remain comfortable with our expectations of occupancy gains and the continued focus of the organization on managing cost. However, given the uncertainty in the economic environment and the recent changes in the Medicare elements of our business, we would direct people to lower end of the guidance range.

I will now turn the call back over to Bill.

Bill Sheriff

Thanks Mark. As we look to the end of the year, we expect to continue to make progress, as we did in the third quarter. We continue to operate under the assumption that we will not see much improvement in the economy. Focusing on occupancy and managing our costs appropriately.

The fourth quarter will see the enactment of the new rugs for skilled nursing reimbursement rates. Our outlook remains the same with Medicare party skill nursing revenues being impacted by $5 million or so per quarter including actions to mitigate the revenue and expense impacts. We still estimate that the new rates will end up about 3% to 4% higher than what we received pre rugs for was somewhat higher expenses. As we have made the case to course skilled nursing remains an integral part of our business strategy and a profitable product line even after these rate reductions. We have a strong private pay insurance orientation with only about one-third of our skilled census being Medicare.

CMS has published its final rules for Outpatients therapy in home health for 2012 and there are some pluses and minuses for us, which will take into account as we prepare our 2012 numbers. I want to close by describing the incredible job organization has done to integrate the Horizon Bay communities into Brookdale. I think it is a very tangible example of the capabilities of our platform. We transitioned over 7,000 associates, 91 communities to Brookdale’s core platform systems and processes. Within in a month we successfully converted nearly all of the communities onto our 12 major business support systems that are highly integrated with the core platform.

The one exception were few CCR-C type communities, where we are in the process to transition our own (inaudible) onto some new systems and decided to not make them go through to conversions. A few of the numbers behind all of this are impressive. We migrated 370,000 sales leads sent out over 18,000 billing statements by the second week and converted 6,000 vendors to our payable systems.

We also initiated the rollout of our ancillary services that enhanced the recent experience and encouraged long term awareness. Built a network of over 350 Brookdale associates these are executive directors, business office, sales directors to assist Horizon Bay peers through the integration process. Create several venues to keep associates informed including a transition page on our internet site, weekly communications, conference calls and WebEx sessions and develop a comprehensive set of training materials with a variety of learning formats including WebEx, in-person and conference calls. All totaled in the second quarter and through the end of September, Brookdale associates spent over 90,000 hours and Horizon Bay associates over 40,000 hours to prepare and execute a transition plan that made the change very seamless for associates and residents.

The bottom-line is that within 30 days, we have switched all of the support systems payroll benefits, residents billing payables, financial statements, purchasing menu management as well as others and provided a high level of support resources. So, that at the corporate level we can capture the information we need and at the local level community leadership can run their business on our systems with no further disruption.

The success of the integration Horizon Bay confirms our belief in the platform that we have built. We are excited about the economics that we are seeing from the cost savings that we bring even to a larger organization like Horizon Bay to the revenue enhancing opportunities we had.

Size and scale do matter particularly when you have an infrastructure ready to capitalize on potential synergies. We continue to see opportunities in the market though given the uncertain capital market, we will act judiciously. We continue to analyze the capital performance alternatives available to us. And, we continue to invest in our Program Max projects.

The economic environment is still challenging, but we believe we are well positioned to continue to enhance shareholder value through organic and optimistic growth. We will now turn the call back to the operator to begin the question-and-answer session, operator.

Question and Answers session

Operator

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

Kevin Fischbeck – Bank of America Merrill Lynch

Okay. Thank you. Just wanted to ask a quick clarification question at the beginning you guys repurchased some stock in the quarter but the share capital is actually up sequentially, did you issue any new options or is that just the timing of the repurchasing that were?

Mark Ohlendorf

I’d suspect that was due to the timing because, if you are looking at the GAAP information you are going to see some weighted average numbers there. We would have had some vesting of restricted share occurred but I doubt that it would have been sufficient change to numbers. We also did issue some number of shares related to the Horizon Bay acquisition. So, there is several moving features in that share count number.

Kevin Fischbeck – Bank of America Merrill Lynch

Okay. So, how many shares did you issue for Horizon -- in Horizon Bay?

Mark Ohlendorf

I believe it was just under a 100,000 shares.

Kevin Fischbeck – Bank of America Merrill Lynch

Okay. And, then I guess we will talk about shares in Horizon Bay. Any comments on the HTP purchase of the stock?

Bill Sheriff

We were unaware that they had intended to do that. We appreciate their thesis but it was not part of or negotiated in anyway due to the basis transaction that were doing with Horizon Bay and therefore the transactions with them.

Kevin Fischbeck – Bank of America Merrill Lynch

Okay. And you mention a couple of plus and minuses in the home health in the therapy rugs, like this like both rugs came in better than the proposals. Do you have any preliminary comment on kind of how you see those pluses or minuses coming out and some are still down next year, but.

Bill Sheriff

Well, it is better then what was anticipated. But, we still need to make sure that we worked through all the details and all of that and certainly will incorporate that into our 2012 plan and our guidance that we will provide on the fourth quarter call for next year.

Kevin Fischbeck – Bank of America Merrill Lynch

March?

Bill Sheriff

Lunch, of they were better then what was is anticipated.

Kevin Fischbeck – Bank of America Merrill Lynch

Okay. And then, maybe I missed it you give lot of numbers and here. But, I guess the CCRC pricing has been incredibly strong. Is that a function of ancillary services or the nursing home rate in there or is that just a function.

Bill Sheriff

Let’s see all of our skilled nursing is in that segment -- in that CCRC segment. So, the drugs for pricing that went into effect October of last year and through the third quarter this year. Does have an impact on that, but the price even without that the pricing in that segment has been pretty good.

Kevin Fischbeck – Bank of America Merrill Lynch

And then, I guess the core pricing that being good is that a function of mixes is just because growing the still living in the nursing home was faster or is that strong actual rate growth?

Mark Ohlendorf

I’m sorry we threw so many numbers at of one.

Kevin Fischbeck – Bank of America Merrill Lynch

Yeah.

Mark Ohlendorf

We actually talked about the rate growth numbers with and without the impact of growth for. Our overall senior housing rate growth was 3.3% without the rugs for rate increase. The rate growth was about 2.2%.

Kevin Fischbeck – Bank of America Merrill Lynch

Is that overall or is that in the CCRC?

Mark Ohlendorf

That is overall.

Kevin Fischbeck – Bank of America Merrill Lynch

Yes, I guess in the CCRCs that the rate number was something like 10% or something?

Mark Ohlendorf

It’s right. I don’t have the CCRC number without rugs for. But, it would have been a decent number probably not dramatically different than balance of the portfolio. But, I expect it, it would have been comparable.

Kevin Fischbeck – Bank of America Merrill Lynch

Okay. And then, I guess, the one part of the business model going forward that you didn’t really talked much about is the development plans, any updates on new beds coming online?

Mark Ohlendorf

We had no openings during the third quarter. We’ll have some in the fourth quarter, and we’re still working on the pipeline and we’re still working on the pipeline and still around the achieving that 1,000 units per year growth starting in 2012.

Kevin Fischbeck – Bank of America Merrill Lynch

Do you know how many are going to open in Q4?

Bill Sheriff

It’s about 30 units.

Kevin Fischbeck – Bank of America Merrill Lynch

Okay. All right, great. Thanks.

Operator

Your next question comes from Ryan Daniels with William Blair.

Unidentified Analyst

Good morning. It’s (Christina Blaishek) for Ryan today. I guess can you talk a little bit more about the use of incentives during the third quarter should try move in any additional colors you can provide on the types of incentives throughout then it would be helpful. And then, I guess also similarly have you continued providing similar types of incentives so far for the fourth quarter?

Bill Sheriff

I wish there was an easy way to describe this, and there is not. Ross and I actually spend sometime trying to come up with some sound bites and found that we failed miserably with sound bites. The reality is the pricing -- it needs to be very customized to every market. And it is different within the market in most cases depending on the product type. So, I don’t really have a useful sort of high level sound bite to give you.

Mark Ohlendorf

As we stated on the last call what we did in May was to reinitiate in some of the tools. Tool box items that we have used over the last several years and did tweak some of that a little bit, but it is not. There is nothing dramatically different or significantly different as you can see from the effects of the rates and stuff through of all of that. As there is nothing that, you know, moves in the needle in a significant way.

Unidentified Analyst

Okay. Great thanks. And then, what is your visibility like on entrance fee communities looking into the fourth-quarter I think you mentioned before a 30 million that number for the year based on recent deposits. And increase and visits so that still seemed like a reasonable expectations?

Mark Ohlendorf

I think so. We do see as we reported and this trickle of very improved trickle that people are being able to sell there homes. And October started out very good as a first month in the quarter. And so, we expect to still see some very modest but slow gradual improvement in those cycles.

Unidentified Analyst

Okay great. And then, I guess maybe a bit broad of a question. As you think about the recent accountable care rule, it looks more favorable to the provider market similarly we have the 30 day readmit penalties on the horizon. Given your breadth of services particularly the skilled nursing facility units, are you working with any hospital providers to be a service provider of choice upon discharge?

Mark Ohlendorf

Yes, we are. And we have a number of initiatives going on. We have I think four hospital systems right now where we have things in process about another 8 or 9 that are in discussion phases. We had one place where we started with one hospital system to specifically address and focus on congestive heart, which is one the readmits focuses and in a nine month period. We have had zero readmissions, based on that we’re expanding that basic program elsewhere, (Dr. Oslander), who is pretty well, the one credited for the much of the research and things to be behind to interact and it’s not focused in highlighted from CMS with interact to and all.

We joined him in a obtaining a grain, a graph who will develop the educational materials and trend materials to support and that ten of our communities have participated in that, and that’s now been rolled up to the balance parts. So, we do have some activity going on and do think that there is going to be some opportunity with not only within our skilled nursing, but also with some element that an essence effective come in to system living. Part of that equation. But it’s -- it will take time for just to see how totally significant this develops. But, we’re fairly positive about it.

Unidentified Analyst

Okay, great. Thank you for other color today.

Operator

Your next question comes from Jerry Doctrow with Stifel Nicolaus.

Jerry Doctrow – Stifel Nicolaus

Thanks. Some of this has been covered. But, just wanted two things; did you the – just the ending share accounts for the quarter and to sort out the share question that came up earlier?

Bill Sheriff

You know Jerry, I apologize. I don’t have that in front of me. It will be reflected in the queue, right? I don’t know, but we’ll grab that number for you.

Mark Ohlendorf

So, we’ll go to maybe one of your other questions --

Jerry Doctrow – Stifel Nicolaus

That’s fine. I want to just come back also into just entrance fee is a little bit. So, just trying to understand the dynamics the extension fee helped a bit this quarter, I think you said you’ve got you’ve had more move ins and move outs. I also want to get a little more color first kind of the size of the purchase prices versus the refund because I think what we’ve had been seen and maybe up until this quarter is that the -- the purchase prices were kind of trending down, refunds maybe trending up a little bit, but just reflecting one people bought kind of into the market. And it look like now you maybe selling units for a bit higher prices. So, just a little more color on that if you could?

Mark Ohlendorf

Well, let me walk you through the math. And then Bill can add some more qualitative color. We had 88 entry fee sales in the quarter that was virtually identical to the third quarter last year where we had 87. The average sale price excluding my choice in Q3 was a 153,000, Q3 of last year was a 146,000 that $153,000 number in Q3 was also up just a little bit from Q2. But, it’s been relatively stable over the last year. You do, that number does move around depending on exactly which units we are selling and exactly where they are. The refund also can move around a little bit for the same reasons depending on exactly, which plans are experiencing move outs and so forth.

But, I think, if anything those numbers are probably relatively flat on a per sale or per-refund basis.

Bill Sheriff

I think that’s clearly one point, our entry fee pricing arrangement below a 100,000 to not quite $1 million. But, up enough the some 800,000 on a few units. So.

Jerry Doctrow – Stifel Nicolaus

Okay.

Mark Ohlendorf

You can get a fair variation just depending on, which units sell in the quarter.

Jerry Doctrow – Stifel Nicolaus

Okay. We should be realign into then? And I think your guidance just indicates that these sales are ramp base in the fourth quarter, which is on a like basis historical pattern, right?

Bill Sheriff

That’s correct.

Jerry Doctrow – Stifel Nicolaus

Okay. And then, just I was you know, we got Horizon Bay coming on, I know market is steady, obviously one quarter end. Anymore color just on how that sort of affects the numbers, quickly I guess, I want to get some guidance on management fee. What’s your expectation maybe for the fourth quarter?

Mark Ohlendorf

Well, we provided some guidance on what our expectation was of Horizon Bay in terms of the economic of that deal over the first 12 months. And that really remains unchanged right now. Let’s – we’ll look back at the information, you saw one month of the management fee impact in Q3.

Jerry Doctrow – Stifel Nicolaus

Okay.

Mark Ohlendorf

You know, the revenue under management’s with Horizon Bay is somewhere just over $500 million in total. So, let us think through how we can help you break that up a little bit for your management fee question.

Jerry Doctrow – Stifel Nicolaus

Okay.

Mark Ohlendorf

And then, the number of shares outstanding at the end of the quarter was $120,911 million.

Jerry Doctrow – Stifel Nicolaus

Okay, that’s helpful. And then, just last thing from me. It’s just your review on acquisitions. I mean obviously you just digested the big Horizon Bay are there more opportunities out there and what’s kind of your appetite for continued consolidation?

Bill Sheriff

Well, there are more opportunities out there. Again, that we will be judicious about what we do. It will depend a bit on the valuation not perspective sometimes. We certainly have had a change here over the last four months in terms of newer cost capital and that translates to hurdle rate.

But, it will be more of a fortune of times that fit us and that the right end can match the, the appropriate hurdle. So, we do expect, still we are working on so and we again are very, very pleased with how the Horizon Bay integration has gone.

Jerry Doctrow – Stifel Nicolaus

And, on the Chartwell we’ve got that right of, I know the first half or first year fees or whatever, is there anything that like the trigger a transaction there in within the next year or so or you think of that as just a longer term option?

Bill Sheriff

Well, all of that depend on Chartwell’s decisions and judgments and we don’t want to predict there or forecast there.

Jerry Doctrow – Stifel Nicolaus

Okay. Thanks.

Operator

Your next question comes from Rob Mains with Morgan Keegan.

Rob Mains – Morgan Keegan

Yeah, good morning. Mark, I maybe over thinking this a little bit, but when I look at the same store numbers sequentially, you suggest you had real strong occupancy number. The average must be revenue per resident, growth was a lot slower, but then when I look at where your occupancy growth came in the quarter, seems to have been more IO, AO obviously than CCRC, when you sort of think about the mix business that came in the quarter is it fair to portray as being kind of skewed for the lower price products?

Mark Ohlendorf

Not sure, I think, it was fairly balanced. From a pricing standpoint or rate growth, since our rate growth this quarter was 3.3% second quarter it was 3.6%, 3.7%, I think. So, it is down a little bit, it’s pretty modest change, I think particularly if you look at our numbers compared to the net data or some of our peers that have reported. We are seeing solid pricing growth, obviously it’s not at the levels we saw back in a very kind of economically healthy period of time, but, still decent growth, particularly compared to our cost growth there. But, the occupancy growth was strongest with independent living and assisted living, CCRC segment was relatively flat quarter-to-quarter. So, I think, I would say its relatively balanced, the entry fee business is still, if you look at the whole year has lost just a little bit of occupancy though in the quarter we actually had more move-ins than move-outs. So, things seemed to be relatively stable their side, I think, I had described it is a little more across the board in terms of occupancy growth.

Rob Mains – Morgan Keegan

Yeah, I was looking at the reported average monthly revenues per resident, the difference between the second quarter 45, 35 and third quarter 45, 85. But, you made a good point that you got a positive impact from ancillaries in Q2 and not in Q3. So, yeah that could you explain…

Mark Ohlendorf

Yeah, the other thing that can skew the numbers just a little bit as you go quarter-to-quarter is remember our skilled nursing is mostly paid well, exclusively paid on per day of service. The other product lines are paid monthly rates. So, as you go from one quarter to the next and the length of the quarter changes by a day or two and we are trying to focus here on 1% or 2% changes in rates it all can get a little bit fussy.

Rob Mains – Morgan Keegan

Right, and then touching on the idea of IL occupancy, it still strikes me that the fees at IL just driven by the economy maybe breaking down little bit given the numbers that you and somebody others who had in the quarter. Could you comment on where the strength is coming from there?

Mark Ohlendorf

Well, I think Bill and I can both take a swing at this one. You know, I think IL even back in 2006 or 2007 has never been a completely discretionary product. There is some amount of need that goes into the buying decision there now clearly as we’ve gone to the economic downturn and people have tried to differ buying as long as they can, it’s probably become marginally more need based. But, it does always involve some level of need and some level of security for the resident family.

I think, during the economic -- well, overtime what you’ve seen are more services being provided for people at their home, their residents. Also at their homes they are independent living in it. So, whether it’s Medicare homecare or private pay homecare or whatever the case maybe, I think in general folks are learning how to extend the support of environment more into independent living. And, if anything this economic downturn is probably accelerated to that some extend.

Bill Sheriff

Thanks Mark. Explanation is right on point again. And, again what’s playing out in AG and the growth of the people over 85 or multiple, chronic conditions and some functional limitations not all of those have to go to the assisted living. And, as Mark described as supportive service improvement it’s, has assisted independent living and competing and if you look at the next data over period of time. And, look at the last seven quarters of our occupancy in that area it’s been really quite flat. And, as we continue to work in our assets, improve the basis and you know, there is the supportive services that segment is competing better. So, I think it always was overplayed in terms of this issue, total need driven versus total discretionary. And, I think one backs off and looks at the data over last period of time the data and our data independent living is alive and well.

Rob Mains – Morgan Keegan

Okay, fair enough. And, then Mark, one balance sheet question. Could you discuss your thoughts about the 2013 debt maturities and when you want to refinance those?

Mark Ohlendorf

Well, historically we have, if you look at how we’ve refinance the last couple of years with the maturities. Historically, we’ve done that kind of four to five, four or six quarter out. The profile of the 2013 maturities does involve a few larger single property loans on some CCRCs, those tend to be floating rate loans. So, there is more flexibility to deal with those earlier. So, obviously our team is looking at the options there, but other than that, I don’t think the playbook on refinancing 2013 looks a lot different from what we have done in the last couple of years.

Bill Sheriff

And, as we have said we expect to make another small increment in that, before the end of the year, and we still have that same expectation.

Rob Mains – Morgan Keegan

Okay. Great, thank you very much.

Operator

Your next question comes from Frank Morgan with RBC Capital Markets.

Frank Morgan – RBC Capital Markets

Yes. Thanks. I have a follow up on that 2013 question. But, also I was just noticing you drew down on your line this quarter and I was curious in the very new term what’s the strategy with regard to repaying that back down. But, once you work your way to this big 2013 bonus. What are your thoughts longer terms about the uses of cash and particularly any interest in perhaps paying dividend again? Thanks.

Mark Ohlendorf

Well, that’s a very broad question. The line draw that we had at the end of the quarter was largely because we closed the Horizon Bay acquisition during the quarter and we also executed $17 million or $18 million with the share repurchases. So, if you add those two numbers up you actually get relatively close to the amount of line draw that we had.

Where the line is at as we go through the share will depend on what kind of capital we deploy not to get to trade in my answer here but depending on what we do with share repurchases, depending on what happens on the acquisition side. We may or may not have line balances outstanding. Obviously, as we generate cash flow and have cash on hand we paid online. And then, it just becomes a question of what capital deployment opportunities are. Which is really the answer to your other question is well, there are a range of capital deployment opportunities available to us, Program Max or expansion and redevelopment of our assets program tends to be a very high return on capital as we’ve look at the range of capital deployment opportunities. Depending on where our stock is trading clearly repurchasing our stock and have a very high return profile, acquisitions clearly it can be very attractive to us particularly overtime as if you look at the growth fundamentals and growing the business and building out markets. So, if we are unable to deploy capital with meaningful returns with that range of things. Clearly, the question of the dividend would come up or the question of a broader share repurchase would come up. Frank, I think it’s difficult to predict that because it’s just going to depend on the opportunities there overtime.

Frank Morgan – RBC Capital Markets

Okay, thanks.

Operator

Your next question comes from Bryan Sekino with Barclays Capital.

Bryan Sekino – Barclays Capital

Hi, thanks for squeeze me in here. Just a quick housing-keeping question, I saw the home health unit service was down sequentially where there some closures in the quarter?

Mark Ohlendorf

I apologies, we actually had a data goof, in our supplement that we filed for the second quarter. The home health units shown are all home health units served both consolidated and managed. And, the third quarter number is just the consolidated units served. So, it actually didn’t change much, we had mistaken our numbers in the second quarter supplement.

Bryan Sekino – Barclays Capital

Got it, thanks. And then just a follow up on the cost of capital comment before. Given where you’re cost of capital is, as you are looking more aggressively at management opportunities similar to Horizon Bay?

Bill Sheriff

Again, our position on third party management. Our view there will be not to go out and pursuit just pure third party management that has some strategic benefit in terms of extraordinary help and feeling completing a triple mass in the market, that might be one exception. Where we have the opportunity for future investment or purchase of assets, it will certainly play in the picture there. And, I think there are going to be more of those kind of opportunities. So, in a sense we may see some growth in that. But, it’s generally a change to be on the basis of how that fits with longer term market development and total assets.

Bryan Sekino – Barclays Capital

Okay. Thank s a lot.

Operator

There are no additional questions at this time. I would like to turn it back over for any closing remarks.

Ross Rodman

Thank you, Rachel. We appreciate everyone’s participation. We look forward to seeing people at our Investor Day in a couple of weeks. And, with that management will be around during the day for follow up questions. So, we look forward to hearing from you. And, again thanks for your participation. Thanks.

Operator

Thank you, ladies and gentlemen for participating in today’s third quarter earnings calls. You may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Brookdale Senior Living's CEO Discusses Q3 2011 Results - Earnings Call Transcript
This Transcript
All Transcripts