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Brookdale Senior Living, Inc. (NYSE:BKD)

Q22012 Earnings Call

August 7, 2012 9:00 am ET

Executives

Ross Roadman - Senior Vice President of Investor Relations

Bill Sheriff - Chief Executive Officer

Mark Ohlendorf - Co-President and Chief Financial Officer

Analysts

Kevin Fischbeck - Bank of America

Ryan Denials - William Blair

Daniel Bernstein - Stifel, Nicolaus

Greg Kuhl - Brookfield Investment

Operator

Good morning. My name is Jody and I will be your conference operator today. At this time, I would like to welcome everyone to the Brookdale Senior Living second quarter earnings conference 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 would now like to turn the conference over to Mr. Ross Roadman, Senior Vice President of Investor Relations. Please go ahead, sir.

Ross Roadman

Thank you, Jody, and good morning, everyone. I would also like to welcome you all to the second quarter 2012 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 Jody mentioned, this call is being recorded. A replay will be available through August 14, and the details of how to access that replay are in the earnings release. This call will also be available via the webcast on our website, www.brookdaleliving.com for three months following the call.

I would also like to point out 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 earning release we issued yesterday, and in the reports we file with the SEC from time-to-time. I direct you to Brookdale Senior Living's earning release for the full Safe Harbor statement.

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

Bill Sheriff

Good morning and welcome to our second quarter earnings call. Today, I am pleased to share an overview of our second quarter results. Mark will review our financial results in more detail. After our remarks, we would be happy to take your questions.

During the second quarter, more evidence confirmed that we maybe experiencing gradual improvement in our industry's fundamentals. While the global macro economic environment certainly remains unsettled, we see signs of improvements in our markets. We have continued to see improving demand in independent living and as I will talk about in a moment, we saw that improvement particularly in the second quarter in our independent living entry fee unit sales where we saw record results. That specific product is more sensitive than the others to local existing market of home re-sales.

There has been expressed some sentiment that 2012 is marking the beginning of a true existing home re-sale market recovery. There is a bullish new forecast and supporting analysis release by Harvard's Joint Center for Housing Studies which suggest that the net result of maturing echo boomers and aging baby boomers likely downsizing could result in a near doubling in household formation rates.

They also observe the fact that multi-family apartment rents are rising which is helping to stabilize home prices. Now this should bode well for the existing home resale market. The recent (inaudible) of pricing data also was encouraging.

The aging acuity trends translates into an increasing need for senior services and an improving existing home resale market will assist in the decision making process as people sort through the affordability of senior housing and the various options available to them.

For the quarter, we achieved CFFO of $69.2 million or $0.57 per share, an 11% increase over the second period of 2011. The increase was driven by key revenue drivers, occupancy, entry fee sales, pricing growth and increased management fees. As Mark will detail, the quarter's results were achieved in spite of some insurance reserve adjustments that showed up as operating expenses.

Looking at occupancy, we increased quarter average occupancy by 110 basis points for the consolidated portfolio over the prior year. Sequentially, our overall occupancy was essentially flat with the first quarter. Excluding skilled nursing, our occupancy was actually up 10 basis points from the first to the second quarter.

Two items to note about our skilled nursing occupancy. First, there is a typically a seasonally decline from Q1 to Q2 which we again experienced this year. Second, we acquired a nearly empty skill nursing community mid-quarter which impacted our skilled nursing occupancy percentage. It was a good deal and we acquired this skill nursing as part of Program Max to ultimately add this service level to one of our larger retirement centers and we are in the process of filling this community.

Story of Q2 was our independent living entry fee sales. Our 106 sales and $14.3 million of net entry fee cash flow were record highest. We have seen improving entry fee sales activities since mid-2011. This improved activity carried through to the first and second quarters of this year. This improvement has been evident across nearly all of our entry fee markets but particularly in Florida and it has continued through July with a strong number of deposits.

Improving existing home sales in our local markets, seniors adjusting to pricing realities and our focus on making sure that we have a full compliment of well trained sales staff all contributed to these excellent results.

Looking at senior housing pricing, performance has remained largely consistent since mid-2011. Pricing remains competitive in most of our markets and the level of promotional activities in those markets remains about the same. During the quarter, our average monthly revenue per unit increased 1.5%. Over the last three quarters, our average monthly revenue per unit increases have been in the 1.5% to 2% range.

As Mark will describe in more detail, we have now expanded from four financial reporting segments to six and one of those is our ancillary services segment. Our trade name for ancillary services and therefore what we call that segment is Innovative Senior Care or ISC. The ISC segment includes our outpatient therapy, home health and now budding hospice services. It does not include therapy services provided in our skilled nursing which is included in our CCRC segments.

Began in 2000, ISC has grown into a vital part of the services we provide to our residents as well as the key features that attracts new residents to our communities. Our refined segment reporting more clearly shows the attractive additional contribution ISC continues to make in spite of governmental rate reductions over the last several years. ISC is also a key driver in our acquisition strategy and as a unique product positioning an economic performance enhancement to any capacity addition we make, like with the Horizon Bay acquisition.

Our rollout of ancillary services to Horizon Bay communities continues to go well. We have now generated revenue at communities representing 8,800 formally Horizon Bay units for home health and almost 8,000 units for outpatient therapy. We expect to be completed this rollout before the end of the year. Serving the former Horizon Bay communities with ISC services was a positive contributor to this quarter and we will take our server quarters to mature the results.

Now, I will turn the call over to Mark to provide more details on the quarter.

Mark Ohlendorf

Thanks, Bill. Let me begin by describing in more detail the expanded segment reporting that you will see in both our data supplement that we posted to our website and in the second quarter 10-Q that we will file in the next several days.

Beginning this quarter, we have expanded the original four segments by breaking out the former CCRC segment into separate rental and entry fee segments and by adding the ISC segment.

Looking at the performance of the six segments, first the retirement centers which showed an occupancy increase of 150 basis points since the second quarter of last year, also increased revenue per unit by 3.7% over the prior year second quarter. This segment has shown good progress since the beginning of last year.

The assisted living segment increased occupancy by 120 basis points versus last year's second quarter and 10 basis points sequentially over the first quarter of 2012. Revenue per unit increased by 2.4% over the prior year second quarter. This segment saw a strong rebound in occupancy in 201 and has been largely steady over the course of the last year.

The redefined rental CCRC segment is composed of rental campuses as well as some skilled nursing communities that are part of a market continuum. Approximately 30% of the units in these segments are skilled nursing, making it more susceptible to swings in skilled occupancy and rate.

The occupancy of this segment decreased by 70 basis points sequentially from the first quarter of 2012 with the entire decrease centered in the segment skilled nursing units. In fact, the occupancy of the other care levels in this segment which represents 70% of the units actually increased by 20 basis points sequentially over the first quarter.

To add to what Bill said, skilled nursing occupancy in the second quarter as affected by first, a normal seasonal decline from Q1 to Q2 which is consistent with what the (inaudible) data shows through the acquisition of a virtually empty skilled nursing community during the quarter and three, as several skilled operators have discussed, we maybe seeing hospitals more aggressively using observation status rather than admittance and not qualifying patients for a subsequent Medicare skilled rehab stay. You may have read press accounts that this phenomenon has caught the attention of CMS and to a lesser degree, Congress.

Skilled nursing occupancy can change dramatically period-to-period and we expect to increase census over the second half of the year. Beyond sequential improvements, skilled census is the focus of a number of business development initiatives including electronic medical records and patient care transition programs.

The redefined the entry fee CCRC segment includes our 14 entry fee campuses. The entry fee segments occupancy was down 30 basis points from the first quarter of 2012, again, the decline more than accounted for by skilled nursing which makes up 20% of the entry fee segments units. The other care levels in the entry fee segment were up 10 basis points in the second quarter over the first quarter of 2012.

Of course, given the skilled concentration, the two CCRC segments are where we have also seen the effect on rates from the Medicare skilled rate reductions and corresponding increased therapy costs.

The fifth segment under our new segment reporting structure is ISC, our ancillary services business. ISC's revenue grew by 14.6% versus last year's second quarter due to an increase in service volume but ISC's operating income dropped by 10.4% due in large part to the Medicare rate decreases in home health implemented January 1 of this year which we estimate to have a negative impact of approximately $2.4 million.

In addition, we incurred increased labor costs resulting from the increased volume, a modest decline in outpatient therapy productivity, transitional cost resulting from our business office centralization process and incrementally higher sales and marketing costs.

From the first quarter to the second quarter of 2012, ISC's operating income grew by $2 million primarily due to the growth spending from the rollout to the former Horizon Bay communities. We expect to see similar improvements over the second half the year. Our hospice services were a positive contributor this quarter and we expect to have hospice services available in seven of our markets by the end of the year.

Our final segment is our management services segment representing the revenues and expenses generated by operating communities either under a minority owned joint venture arrangements or for third parties. In addition to the refinement of our segment definitions, we have added in our supplemental disclosures and allocation of G&A cost to each of these segments. When subtracted from the operating income for each segment, you can see an approximate fully cost margin for this set of services and/or segments.

In conjunction with the changes in our segment reporting, we have also changed the way we report our same community information. We now show the same store data for senior housing and for ISCs separately. For the quarter ended June 30, compared to the quarter ended June 30 of 2011, our senior housing same store communities produced a 2.4% increase in revenue due a 1.1% increase in revenue per unit and a 110 basis points improvement in occupancy.

The senior housing same store rate growth was negatively impacted by changes in Medicare SNF rates earlier this year. When we excluded these rugs for SNF reimbursement and related expense changes from these senior housing same store comparisons, revenue increased 3.2% with revenue per unit growing by 1.9%.

Senior housing same store expenses grew by 5% and (inaudible) decreased by 2.5% in between the second quarters. Included in these expenses were $3.6 million of insurance reserve adjustments primarily related to our general and professional liability insurance program, our GLPL program and our group medial insurance program.

We have seen some negative development of prior GLPL claims which resulted in the reserve adjustments this quarter. In addition, our health insurance program appears to be funding an unusual number of larger claims this year. Without these insurance reserve adjustments, same store expenses would have increased by 3.9% rather than the reported 5%.

We are now separately reporting same store results for the redefined ISC segment. Our definition of same store locations within ISC calls for a location to be stabilized or to produce revenue for the 24 months ending on the reporting date.

Because ISC has grown so rapidly over recent years, especially through the acquisition of home health operations, only 54% of units served by ISC qualify as same store thus making this information somewhat less useful than the same store information in the senior housing operations.

In any case, same store revenue for ISC declined 2.2% in then second quarter of 2012 compare to the same period in 2011. Same store expenses increased 6.9% between these periods while same store ISC NOI declined by 22.3% between the quarters. As in the ISC segment, performance was negatively affected by the reduced home health rates and increased labor costs.

General and administrative expenses, excluding non-cash stock based compensation expense and integration transaction related and EMR roll out cost was approximately $31.7 million which was 4.2% as a percentage of total revenue under management compared to $28.2 million for the second quarter of 2011. Much of the increase in absolute overhead dollars is of course related to the addition of the Horizon Bay communities to Brookdale's operations.

I want to comment on the integration, transaction and EMR roll out cost this quarter that totaled $7.7 million. A portion of those costs are related to the integration of Horizon Bay including some costs of rolling out ISC. The other portion relates to the ongoing effort of installing electronic medical records throughout business.

Some of this integration cost was precipitated by the acceleration of the roll out of ISC into the Horizon Bay communities. More broadly, the implementation of EMR is driven by the need to interface with acute care providers and physicians, many of whom receive stimulus monies to install their own EMR systems. We have talked previously about increased capital expenditures for our EMR initiative.

However, certain of the software vendors we selected did not sell their systems but rather charged a large one time upfront implementation fee and provide us system access under a shared services arrangement. Much of what is in the EMR non-recurring number this quarter relates to that implementation fee for the home health EMR system, which is expensed rather than capitalized.

We expect to incur $4 million to $5 million of additional non-recurring EMR expense for the balance of this year added to the tail off of Horizon Bay integration costs for a total of $4 million to $5 million per quarter for the rest of this year.

Turning to the balance sheet, we continue to be in a strong position. We do not have any debt maturities until 2013 except for normal scheduled principal amortization. As we have discussed, our 2013 maturities without extension rights total around $300 million. We continue to have active positive dialogue with lenders on refinancing the various pieces of debt and have a plan in place to refinance these loans to address the maturities.

With the low rates on a portion of this debt, we will continue to measure the appropriate time to refinance. Current indications for 10 year mortgage debt would place the interest cost in the range of 4.5% for fixed financing and LIBOR plus 280 basis points for variable rate debt.

Looking at the CapEx, our spending in Q2 for maintenance CapEx, which we include in our CFFO calculation was $8.6 million or $16.7 million year-to-date. Our corporate CapEx totaled $6.8 million in the second quarter. We continue to prioritize capital deployments to those areas with the highest returns with expansions, redevelopment and repositioning at the top of the list.

During the quarter, we spent $11.2 million on Program Max activities. We also spent $22.6 million on EBITDA enhancing in major projects during the last quarter. As a reminder, these were less expensive projects than Program Max but enhance the community such that we expect higher financial performance due to better occupancy and rate growth.

I will turn the call back over to Bill for closing comments.

Bill Sheriff

Thanks, Mark. As we move into the second half of the year, we are encouraged by what we are seeing in our markets. Certainly the predictive slow economic recovery is in the tailwind but elements like the local existing home resale markets continue to improve, it will certainly help.

Second half of the year is usually our strongest period of growing occupancy. We have seen independent living gaining traction over the last year and entry fee independent living has also been growing stronger since mid-2011. Taking aside the newly acquired skilled nursing building, our occupancy grew each month during the second quarter and in July. We have also seen strong activity in entry fee sales in July as well as an increase in the in skilled nursing census.

We have been pleased with the consistency of our pricing in independent living and assisted living. We have one more quarter of difficult comps for skilled nursing as a result of the RUG-IV changes, but now we know we would get 1.8% increase in the fourth quarter in our Medicare skilled nursing rates. The 2% sequestration cut is currently scheduled to take effect January 1, 2013.

Going forward, we will be mindful of expenses. The third quarter is our most difficult expense quarter with the number of days affecting labor cost and seasonal cost like utilities. The extended hot weather will also have an impact. Food cost will increase due to the drought, but with our purchasing contracts and menu management disciplines, it will be more of a 2013 issue.

We did have a hit to our medical benefit cost this quarter due to some high cost cases and higher utilization. Over the last two years, our medical benefit inflation has been 3.5%, much lower than the national average for corporate plans due to our wellness programs put in place several years ago that really do work.

Our planned cost remained below the national average at approximately $15 million per quarter. We will continue to monitor these costs. We are encouraged by the improvements we see in the business, solid occupancy and growth, improving entry fee sales and progress in ISC, with some caution regarding selected expenses such as the health insurance.

On balance, we remain comfortable with our annual CFFO guidance range with $2.10 to $2.20. We are constantly reviewing our capital deployment priorities and capital structure in light of the opportunities we are looking at. Considerations include capital required, the potential to take advantage of strategic opportunities or significant acquisitions, capital required for Program Max and CapEx reinvestments, which can have both, short and long-term returns as well as share repurchases and dividends. This remains a high priority of management and the board.

We are keenly focused on maximizing shareholder returns. We continue to do the reinvestment in our current portfolio and should continue to be our priority. Completed Program Max projects are yielding 15% plus returns. We currently have 28 projects that are currently approved. Of that 13 are under construction encompassing approximately 1,900 units and adding 400 new units over roughly the next year with project cost of $65 million. We are working with lessors to commence the other 15 projects. Year-to-date, we have spent $25 million of cash on these projects with three projects already completed in 2012.

The other areas of investment in our portfolio is our EBITDA enhancing projects, the less expensive projects than Program Max. We have 58 of those projects completed and/or underway, and we have now completed 27 projects in the last 12 months encompassing over 2,500 units. Based on last quarter's annualized performance, the return on those 27 projects is close to 20%.

As to acquisitions, we will continue to be very disciplined. It remains an active market. We have given notice of our intent to exercise purchase options on two sets of assets currently leased from REITs. Buying back these assets in favorable terms will be accretive. One of the communities the retirement center will be expanded into a CCRC using (Inaudible) skill beds we recently purchased in the second quarter.

As we work through the rest of the year, we are intently focused on execution maximizing our opportunities in the market, deploying our capital judiciously, producing the highest returns and at the same time, exceeding our results expectations, all key elements for increasing shareholder value. With the improvements we have seen so far this year, we remain encouraged about our outlook for the remainder of 2012.

We will now turn the call back to the operator to begin the question-and-answer session. Operator?

Question-and-Answer Session

Operator

(Operator Instructions). Your first question comes from the line of Kevin Fischbeck from Bank of America.

Kevin Fischbeck - Bank of America

Can you talk a little bit more about the margin performance? Looks like the margins were down year-over-year in all three segments, but I am assuming that the EMR and the insurance costs might have skewed some of those things. So how do we think about those costs across those divisions?

Mark Ohlendorf

Again, the EMR implementation costs were being broken out on a separate line. The primary drivers of the margin performance in the segments will be the insurance reserve adjustments, which impact all the segments, but the modest decline you see in the Assisted Living and Retirement Center segments would relate to that.

The CCRC segment you would have the insurance reserve adjustments more significantly though, you have the change in medical reimbursement rates in those two segments. Then again, ISC was impacted with the change in homecare rates effective at the beginning of this year.

Kevin Fischbeck - Bank of America

So, is it right to say that kind of on a more normalized basis you think the margins were flat to up a little bit? That's the way to think about it?

Mark Ohlendorf

For independent living and assisted living, that would be the case. Again, adjusted for the change in Medicare rates and the CCRC segments, I think that's fair.

Kevin Fischbeck - Bank of America

Okay, and so EMR costs are in G&A number on your consolidated P&L?

Mark Ohlendorf

They are in our consolidated G&A on the P&L. That's correct.

Kevin Fischbeck - Bank of America

Okay. So, the CapEx number, it was a little bit lighter than we thought. Is that just the timing number or is CapEx being pushed out little bit?

Mark Ohlendorf

We are not purposely pushing out the CapEx, so at this point I think it would be safest to assume it's a timing issue.

Kevin Fischbeck - Bank of America

Okay. I guess given the returns that you are getting it was helpful to hear about the spending on both Program Max and the EBITDA enhancing CapEx, although not sure if you mentioned it but how much money do you expect to actually spend in the second half of this year on those types of initiatives and any thoughts around kind of 2013 spending at this point?

Mark Ohlendorf

The guidance that we had in place at the beginning of the year continues to be in place. I don't have those numbers right in front of me here, Kevin.

Kevin Fischbeck - Bank of America

Okay. That's fine. Would you expect something similar next year?

Mark Ohlendorf

Probably would. Again, we are in the planning process for next year, and from an actual cash investment standpoint, some of this is affected by whether we are doing the work related to leased communities or owned communities. So again it's difficult for us to give a general answer to that question and so we provide the guidance for 2013.

Kevin Fischbeck - Bank of America

Okay. Then last question. It sounds like you guys are feeling like a lot of the data points you are seeing imply that the core fundamentals are starting to improve. I know we've seen for the last couple of years some ebbs and flows around occupancy. Is there something that makes you feel a little bit more confident about what you are seeing here versus some of the data points you have seen over the last couple of years?

Bill Sheriff

Again, ebbs and flows, ups and downs have been heavily influenced by the economic environment and housing, other things, right now. If the trends continues as is, we would expect to continue to see improve, but we still have a pretty uncertain economic environment out there.

Kevin Fischbeck - Bank of America

Okay. All right Great. Thanks.

Operator

Your next question comes from the line of Ryan Denials from William Blair.

Ryan Denials - William Blair

Good morning, guys. Thanks for all the information. Mark, I want to go back to the EMR rollout. You may have given this, and if so, I apologize, but do you have the exact number or rough number for the EMR implementation cost in the quarter?

Mark Ohlendorf

It is roughly $3.8 million of the $7.7 million that we referenced.

Ryan Denials - William Blair

And then going forward, you will be paying kind of a monthly fee as software-as-a-service type fee for that, which will just appear in you G&A line?

Mark Ohlendorf

That's right. Obviously, we are in the middle of the rollout process for that system, so until we get implemented in all the locations that cost won't start to be incurred.

Ryan Denials - William Blair

Okay. I know that's for the home health. You indicated that would be kind of rolling on around the August timeframe. What about the other two best-of-breed systems. Are they going to be a similar type of deployment where you are paying a large implementation fee and then a monthly fee going forward?

Mark Ohlendorf

That is likely the case, yes, and again, we are using largely internal resources to roll these systems out. So it will be sequential to some extent where once we conclude home health, we will move on to another of the areas of the business and then to another.

Ryan Denials - William Blair

Okay, that’s helpful color. Then, just on the SNF occupancy, you indicated you thinking in the back half of the year that can pick up and you mentioned that’s a focus of your business development team. Does the one that revolve around your readmission avoidance programs with CHF and the ability to share data with EHRs et cetera. Is there some assumption in there that the industry will taper back and the observation cases given some of the momentum in Congress to help the seniors resolve that issue?

Bill Sheriff

As I said last year, there is still a little bit of an uncertainty but a lot of us going on the market is certainly heavily influenced by the focus of the hospital systems as well as the Medicare advantage program elements and stuff to get far more focused and who they work with and how they work with those providers and we do think our programs are positioning very well to end up in provider list as well as preferred relationships.

We do have a higher (inaudible) percentage of our census than most any of the major health systems out there, hospice systems and we are very encouraged with what we are getting in terms of the response and activity and working relationships we are building with the parties with measurable outcomes and the quality measures are boding well for us.

Ryan Denials - William Blair

Okay, that’s helpful color. One last one. Just good color on Program Max and the 28 projects. I am curious with the 15 you are still working on. Given the return that you are seeing there and the relatively lower risk profile of generating those returns, is it just you staggering it so that your investment staggered overtime or the 15 that haven’t started is that just continuing to go through hurdles with some of the REITs to make sure that you can roll those out effectively? What's gating factor there in those other 15?

Bill Sheriff

Certainly the latter part of that in terms of working through the REITs and also then whatever underlying finance they had and it kind of extends it out a bit. I think we are making measurable progress. Significant progress with these other partners in that regard and these end up being fairly complex projects which require everything from drawing licensing issues, waivers, different things that.

They are not easy to conceive and so it does take time and so there is, we have pretty good bandwidth in that regard but still it is not something that you can go out and do 50 or 60 all at a time. Also, with a number of those, we have got a number of units offline. Floors or buildings that are waiting for the work process. So that also impacts this a little bit. So there is a limit to how much you want to take on at a time in that regard.

Ryan Denials - William Blair

Okay, that’s helpful color. Thanks again, guys.

Operator

Your next question comes from the line of Daniel Bernstein from Stifel, Nicolaus.

Daniel Bernstein - Stifel, Nicolaus

Just wanted to go over the SNF occupancy again in the second quarter. I am just trying to understand the SNF asset that you purchased as completely unoccupied. How many units was that SNF property? If my understanding is correct, you are going to use those licenses to expand the property or taking back from the REIT. Is that a correct assessment?

Bill Sheriff

That’s correct and 66 beds.

Daniel Bernstein - Stifel, Nicolaus

Okay, and if I backed that out and based on your comments, is it safe to assume that you are up something like 10 bips or so on the private pay occupancy? If I was thinking of it as a same store private pay occupancy, is that the right range or is it something higher than that?

Bill Sheriff

I think you got it.

Daniel Bernstein - Stifel, Nicolaus

Okay, and just also trying to understand the trends in the quarter in occupancy. Was ending occupancy above your average 87.7%?

Mark Ohlendorf

Yes. Ending occupancy will almost always be above the average.

Daniel Bernstein - Stifel, Nicolaus

Is it? And it is above that today as well? If I read your July comments correctly.

Mark Ohlendorf

That would be correct.

Daniel Bernstein - Stifel, Nicolaus

Okay. Do you have an exact number to give us or is that?

Mark Ohlendorf

No, we don’t.

Daniel Bernstein - Stifel, Nicolaus

Okay. I also just wanted to go over the entrance fee side. You had spectacular number of move ins but also move outs seemed to be lower than historical. I guess, only about 60 move outs on the entrance fee side. If you could talk about how that average should change going to the third quarter, do you expect that to come back to something like 80 move outs of what we have seen in the last several quarters?

Mark Ohlendorf

Well, we have commented on both of that over the last two quarters that we had unusually high spike and unusual high move outs which are refunds rather, which we didn’t expect that to be continuing. So this is more close to returning to a more normalized number than not.

Daniel Bernstein - Stifel, Nicolaus

Okay, and then on the Program Max, if you can go a little further into, if you had any expansion units come online in the second quarter and maybe a little bit detail on the number of expansions units that might come online in the third and fourth quarter of this year?

Mark Ohlendorf

Just a second, we are looking. I don’t believe we had expansion units open in Q2. If we did it would have been a very modest number.

Daniel Bernstein - Stifel, Nicolaus

Okay. Do you expect that to pick up some in the second half of this year?

Mark Ohlendorf

Again, a modest number, the lion's share of our unit additions out of Program Max, first the repositioning, comes into next year.

Daniel Bernstein - Stifel, Nicolaus

Okay. I think I have got for now. I will jump off. Thanks.

Operator

Your next question comes from the line of Greg Kuhl from Brookfield Investment.

Greg Kuhl - Brookfield Investment

Just wanted to ask a question on how you are looking at the valuation of your stock. I know that in November of last year, on your investor day, you talked about your estimated NAV being the low to mid $30 range. I am curious, obviously, you are trading at a large discount to that and you look at some of your peers or partners on the healthcare REIT side who are trading at very large premiums to any of these. I am just curious what you guys have thought about doing to close that gap aside from just kind of running the business.

Bill Sheriff

As I said it in my remarks, we are very focused on evaluating and examining all the elements of that and it safe to assume that we are very much focused on how do we address that.

Greg Kuhl - Brookfield Investment

Okay, thanks.

Operator

Thank you. At this time, there are no further questions. I will now turn it back over to Mr. Rodd Roadman for any closing comments.

Ross Roadman

With that, we want to thank you for your participation. Management will be around all day. Give me a call if you would like to have any follow up conversation. With that, thank you very much.

Operator

Thank you. That concludes today's Brookdale Senior Living second quarter earnings conference call. You may now disconnect.

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