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Brookdale Senior Living Inc. (NYSE:BKD)

Q2 2008 Earnings Call

August 7, 2008 8:00 am ET

Executives

Ross Rodman - IR

Bill Doniger - Vice Chairman

Bill Sheriff - CEO

Mark Ohlendorf - Co-President and CFO

Analysts

Jay Habermann - Goldman Sachs

Adam Feinstein - Lehman Brothers

Christina Blaishek - William Blair & Company

Jerry Doctrow - Stifel Nicolaus & Company

Frank Morgan - Jefferies & Co.

Rob Mains - Morgan Keegan

Stefan Mykytiuk - Pike Place Capital

Sloan Bowman - Goldman Sachs

Operator

Good morning, my name is Jacob and I'll be your conference operator today. At this time I would like to welcome everyone to the Brookdale Senior Living Second Quarter 2008 Conference Call. All lines have been placed on mute to prevent background noise. (Operator Instructions) Thank you. Mr. Roadman, you may begin your conference.

Ross Rodman

Thank you, Jake. Good morning, everybody. I would like to welcome you to the second quarter 2008 earnings call for Brookdale Senior Living. Joining us today are Bill Doniger, our Vice-Chairman; Bill Sheriff, our CEO; and Mark Ohlendorf, our Co-President and Chief Financial Officer.

Before I turn the call over to Bill, I would like to mention a few things. First this call is being recorded. The replay will be available through August by calling 800-642-1687 from within the US or 706-645-9291 from outside of the US and referencing access code 58192511. This call is also available through our website, www.brookdaleliving.com for three months following the call.

I would also like to point out that all the 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 other factors that could cause actual results to differ materially from Brookdale Senior Living's expectations are detailed in the earnings release we issued last night and in the reports we file with the SEC from time to time. I direct you to Brookdale Senior Living's earnings release for the full Safe Harbor statement.

Now I would like to turn the call over to Bill Doniger. Bill?

Bill Doniger

Thanks, Ross. Welcome everyone. CFFO for the quarter was $0.45 per share after adjustments. More importantly, the key drivers of revenue growth for our business have continually improved on a monthly basis throughout the second quarter and into July and August looks good as well. Occupancy is up approaching 1% since May, and our interest fee activity has picked up measurably as well. I think we had the best quarter we have had on entrance fee side in quite a while.

Additionally we completed all the financings we intended to accomplish for the year and have no material debt maturities for the foreseeable future. As we indicated in our last earnings call, our Board of Directors authorized $150 million stock repurchase plan. During the second quarter, we repurchased approximately 780,000 shares before the trading window closed and more importantly we anticipate recommencing our buyback plan when our trading window opens this quarter, to take advantage of the most attractive investment opportunity we see in the market right now, our own shares.

Today on the call, Bill and Mark are going to address four principal topics: first revenues; i.e. occupancy and rates; second ancillary services; third, operating costs; fourth, balance sheet and liquidity. As you will hear, the facts are positive. Our business remains healthy and we remain optimistic with the direction we are heading.

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

Bill Sheriff

Thanks, Bill. Let's get right into it. First, let's talk about occupancy. Q2 average occupancy was 88.9 which was slightly lower than Q1. However, recent trends are more encouraging. Occupancy started stabilizing during the quarter as move-in rates began increasing leading to June, which ended as our first positive occupancy month since July 2007.

Occupancy was solidly positive in July and we believe that the combination of June and July's change was an increase approaching 1%. Our preliminary read on for August looks to continue the trend of occupancy improvement and our team feels a level of firmness they haven't felt in many months.

Looking at our segments, the Assisted Living segment occupancy where we have added sales resources was stable from April through June and July. Although the CCRCs and retirement centers trended lower during the same period, the decline was much smaller in Q2 versus Q1 and the retirement centers ended with occupancy gains in June and July.

The Entrance Fee business also performed well given the housing market challenges. Although still below what we think as a normal level we produced 78 sales in the quarter, the highest number since the fourth-quarter of 2006 and generated $7.8 million of net entrance fees in the quarter over $3 million better than the same period last year and over $5million better than the first quarter.

What have we been doing to create this improvement? First, we continue to take advantage of our critical mass, where we have multiple properties in the same market, we call these our end three markets. We are able to cross-sell customers to best fit their needs and these are product security. Our marketing folks are placing more people in the system as we can provide for just about any customer.

We have a virtual CCRC in these markets giving the customer attractive options within the Brookdale network, which lengthen stays within the network. In the 12 markets where M3 has been initiated by the beginning of 2008, we gained more than 1,000 residents from in truck company transfers or sharing of referrals through the end of June. About 60% of our portfolio is clustered in markets where we can introduce some form of cross-selling or joint marketing. This is something that is really unique to Brookdale and is almost impossible to be replicated by any of our piers.

Second, we have continued to make additions to the sales force and occupancy has stabilized or increased in the regions where we have done this. For example, in the four regions where these news sales resources are focused, average occupancy for Q2 is over 3.5% from the same period last year.

Now let's talk about rates. Rates are holding well. We continue to see five-plus percent increases on same-store basis across the portfolio with only some geographic weakness. Our national brand is paying dividends. Customers come to our communities and believe that they are getting more value from our service.

Finally let's talk about ancillary services. This element of our business is totally needs driven and continues to produce strong, increased results. Again, this is something that is unique to Brookdale and the senior living industry. Our ability to provide this service in-house is another component that will differentiate us when a customer is making a decision where to move.

The rollout is going very well with ancillary revenues increasing 19% over the prior year quarter and net operating income 33% between the periods. At the end of the quarter, we were providing therapy services to over 32,000 units in our portfolio, up from 27,000 in Q2 last year and almost 11,000 units with home health versus 6,250 last year. At the same time, the legacy platform is improving on already strong results with monthly NOI or occupied unit improving to $215 in Q2, the highest ever.

I would like to turn it over to Mark at this point.

Mark Ohlendorf

Reported cash from facility operations or CFFO for the quarter was $0.36 a share, compared to 2Q '07 $0.41 a share before nonrecurring adjustments. In the second quarter we recorded $8 million of litigation-related reserves and incurred $2.4 million of acquisition and integration related costs.

We also incurred $1 million of start-up expenses related to the ahead of plan rollout of ancillary services. In the quarter we recorded $2.5 million benefit resulting from the acquisition of a facility that we previously managed.

Excluding these items, Brookdale's second quarter CFFO grew to $0.45 a share. Same-store results for the year-over-year showed an increase in revenue of 5.9%, a result of an increase in average revenue per unit of 7.4% and a decline in occupancy of 1.3%. Expenses grew at 6.8% resulting in same-store NOI growth of 4.3%.

Adjusting out the ancillary services impact from the Legacy Brookdale units, revenue grew 4.2% with rate up 5.7% offset by the 130 basis point occupancy decline. The pricing environment remained stable and our occupancy trends are firming.

Same-store expense growth in the quarter is impacted by the rollout of ancillary services to the Brookdale units and related start-up expenses. Excluding this ancillary expense, year-over-year same-store expense growth in the quarter was 4.7%, substantially in line with our plan. This growth in operating costs is somewhat higher than the 3.5% to 4% we would expect to see over time.

The excess over that normalized rate in the second quarter was driven primarily by our staffing levels which are reflected in two ways. First, it has been a key initiative over the last two years to reduce vacancy of our community level management teams, generally Executive Directors and healthcare coordinators.

Retention of local management is one of the most important drivers to improving long-term operating performance, and we have been quite successful in this effort. Over the last year we have reduced the number of vacant management positions in our communities by approximately 50.

Let me give you some numbers to give you some perspective on the benefits of our efforts. The difference between a community that has had zero turnover at the senior level over the last year, we had a 108 of those communities, and a community where we had three positions turnover during the last year, we had 58 of those communities, shows up in both occupancy, where there is a difference of 8 points, low 90s versus low 80s, and operating margin where there was also an 8 point difference, high 30s versus high 20s.

Second, we are positioning our assisted living portfolio for continued growth. I would point to some examples of this repositioning. As described last quarter we've added 50 sales people in the last year to beef up our sales efforts on the front line. Our spending is also incrementally higher for advertising and other lead-generating activities. We have also made significant qualitative changes in the dining programs with a modest increase in cost.

These incremental investments are already providing positive results as evidenced by our occupancy and rate trends described earlier by Bill. The increase in these two areas accounted for over 40% of the nominal dollar increase in our same-store expenses over last year. Excluding these items, our same store expense increase was less than 3.5%. Third, we did see some increase in commodity-related costs. These commodity-related costs which include items such as supplies and utilities account for around 18% of our operating cost and the current annual rate of increase for these items is approximately 6% to 7%. Most of the increase was contemplated in our plan for 2008 and our costs are running are closer to where we thought they would be.

With respect to our balance sheet, during the second quarter we placed $143 million of supplemental mortgage financing on our assets, producing $140 million in net proceeds, the balance on our revolving line of credit decreased from $203 million end of Q1 to $50 million at the end of Q2. We received questions of access to financing because of widely publicized uncertainties in the debt market generally, and more specifically related to Fannie Mae and Freddie Mac. To be clearer, we have completed substantially all of the asset level financing we intend to complete in 2008. For 2009, we have only $49 million of secured financing maturing, and for 2010, only $26 million. Our corporate line matures in May 2009 and at that point we expect to have only a modest outstanding balance.

To conclude, let me turn the call back to Bill Sheriff.

Bill Sheriff

We are starting the second part of the year a bit behind where we thought we would be in terms of occupancy, but we have really good momentum for July and August. If things continue improving as they have recently, and we tend to believe they will, we would expect double-digit growth for the year. As a timing matter, we expect Q3 results to be possibly below Q2 because of seasonality of some of our expenses, particularly utilities and consistent with prior years, and we expect Q4 to exceed both Q2 and Q3 results.

Let me conclude by saying I feel a lot better about things today than I did in early April. While we are not ready to declare victory, I am cautiously optimistic. The occupancy and MPP trends we are seeing support that feeling. We continually seek to improve our business and have made decisions to invest in certain areas like the sales organization and management of assisted living portfolio which has such a significant long-term upside potential. We believe that we are focused on managing those elements of our business that drive results and look forward to seeing that hard work pay off in the coming quarters.

At this point, we would open it up for questions.

Question-and-Answer Session

Operator

(Operator Instructions). We will pause for a brief moment to compile the Q&A roster. Our first question comes from the line of Jay Haberman.

Jay Haberman - Goldman Sachs

Hey, good morning. Here with Sloan bowman as well. Bill, just starting off with your comments, with regard to the firming and occupancy, you know, it does seem to run counter to sort of the trends we are still seeing in the housing market. And I am just curious to sort of get your thoughts, I mean, do you think more a function of the beefing up on the expense side and obviously reducing the turnover at the facilities or are you seeing at really just improving sort of demand from the customer?

Bill Sheriff

It is a combination of factors. There is the continued pent-up demand I think is beginning to be evidenced across the sector. Certainly we believe that some of the investments that we have made are beginning to bear fruit. And we think the perception of the consumer is -- though there is not a total sense of bottoming, it is definitely improving.

Jay Haberman - Goldman Sachs

Okay. And you mentioned the increase, 100 basis points, I guess, from the lows. Are you still seeing that sort of trend continue? I guess given the recent data?

Bill Sheriff

Our most recent data and outlook and the book at what we have for August continues the trend that we saw in July.

Jay Haberman - Goldman Sachs

Okay. And then, with regard to share repurchase, I know you mentioned that the $20 million and you will be back in the market again. You know, what's the expected timing for completing $150 million? Is that the year-end agenda or is that going to likely persist into next year?

Bill Sheriff

The approval expenditures in next year and we are not going to give the specifics.

Jay Haberman - Goldman Sachs

Okay. And just one further question on the litigation. The $8 million reserve you've set aside at this point. Can you just give us a sense of how you arrived at that number, and obviously if settlements don't go forward with the second case, where do you potentially see that number going?

Mark Ohlendorf

Well, this litigation obviously has been in our securities documents since the time of the IPO. So, this has been around for some time. We make a judgment around what we believe our ultimate exposure to be, and that's what we have recorded.

Jay Haberman - Goldman Sachs

Okay. And then, just one other question on G&A. Is the most recent quarter, the likely run rate for the balance of the year?

Mark Ohlendorf

Well, the G&A numbers do -- G&A numbers can move around a million or two a quarter, but in general, yes. Remember, the G&A number we report includes the non-cash stock comp and the integration costs, including the litigation reserve for this quarter.

Jay Haberman - Goldman Sachs

And Sloan has a question as well.

Sloan Bowman - Goldman Sachs

Yeah, just one quick one for Mark. I am just trying to reconcile a couple of items on your cash flow statement on the balance sheet, just with regard to the debt repayment you did in the quarter and $140 million in refinancings, could you reconcile that with the jump, kind of a big jump in current liabilities? And specifically, did you guys issue any more debt in the quarter? Or no?

Mark Ohlendorf

Well, in the cash flow statement, you show the gross amount of new debt and the gross amount of paydowns. So, off line, we can trace through it a little more fully. The primary issue related to the current maturities of debt, which I think is what you are referring to.

Sloan Bowman - Goldman Sachs

Right.

Mark Ohlendorf

We have -- again, in 2009 net of the extensions that we have, we have $49 million worth of maturities in 2009. Some of our extensions include MAC provisions, and because of that are classified as current from an accounting standpoint, but we have every intention to extend those maturities in 2009.

Sloan Bowman - Goldman Sachs

Okay. So, to be clear there wasn't any other unsecured financing taken out in the quarter?

Mark Ohlendorf

No.

Sloan Bowman - Goldman Sachs

Okay. Alright, thank you.

Operator

Our next question comes from the line of Adam Feinstein.

Adam Feinstein - Lehman Brothers

Yeah, hi. Just a few questions here. Maybe just on the pricing, you know, it seems like pricing is holding up well that kind of countered to how we would think. You talked about occupancy getting better in July and August. Just curious if your outlook on price is still the same also as we think about the ramp up in the occupancy, and just curious whether you are seeing a lot of difference in the different geographies also with respect to pricing?

Bill Sheriff

Our outlook on pricing is much the same. There are a little bit of geographic weakness as I mentioned, but, the fundamentals of the sector continue to be very strong, as well as I think they are continuing to be good payoffs from our branding efforts and the other investments that we've made, and it's a combination of all the factors.

Adam Feinstein - Lehman Brothers

Okay, great. And then, just with respect to the guidance, you had said that you are countered with a double-digit growth, but is that -- you know, before you were talking about 15% to 20% CFFO growth. So, could you just describe it in a little bit more detail?

Bill Sheriff

Well, without trying to be specific, as I said, we are starting the second half of the year below where we expected to start it. And we do think the trends that we have seen recently, we think they are sustainable, but it is still a very uncertain environment, and we would tend to believe that if the trends stayed at a double-digit growth is not out of the question.

Adam Feinstein - Lehman Brothers

Okay, great. And then, you know as you guys think about your business model and obviously there has been a lot of market concern about occupancy rates and they've come down a little bit, but not in a huge way. Could you just talk about what ability you have to bring down costs to the extent, occupancy does move lower and just based on your past experience in terms of managing through that?

Bill Sheriff

Well, I think we've always had the ability, particularly in the assisted living part of the business, and the tighter equation and we are trying to learn that in the other business to make sure we adjust cost and expenses pretty directly to occupancy. We have continued our efforts, if we take out the areas where they have specifically and intentionally invested additional dollars and staffing elements of our management and sales force and the food basis our costs have been quite in line, when you take those factors out and we would continue to have a strong focus on that. Our G&A costs have continued to trend lower. So we would expect to continue to be able to respond if that were the case.

Adam Feinstein - Lehman Brothers

Okay, thank you very much.

Operator

Our next question comes from the line of Ryan Daniels.

Christina Blaishek - William Blair & Company

Christina Blaishek for Ryan this morning. Can you start by just talking a little bit more about inflationary pressures on the business and how you are managing them? I guess more specific it appears that some direct costs are increasing. For example, food and energy while others are decreasing such as labor and insurance. Any thoughts you can provide will be helpful.

Mark Ohlendorf

Sure. I mean, as I said, about, the most broad definition of a commodity related cost for us we'd call about 18% of our operating costs commodity related. That is primarily food, supplies and electric and gas within the utility area.

In the quarter, clearly, there was some pressure, particularly related to natural gas, for example, which in some of our markets is largely an open market commodity. Clearly there is general pressure upward on food costs. In some of these areas we are able to offset the commodity pressure either by further advances in our purchasing programs where we drive down unit cost by aggregating the buying volume, or, for example, in the dining area, we are able within some range to make substitutions in the structure of the menus, for example. On the labor side, I think we continue to see costs inflation at the level we have seen over the recent history. So its that 15% to 18% of the cost structure that I think is really at issue here.

Christina Blaishek - William Blair & Company

Okay. Great. And then just maybe a little bit more color on the M3 initiatives you had talked about in your prepared comments. How many markets is the program currently implemented in, and is the rollout to additional markets still on track?

Bill Sheriff

We are up to 15 at this point in time. Others, kind of in the line of the schedule and we continue to see, month-to-month improvement in the cross referrals. The total lead generation activity and as well as the transfers, the intranetwork transfers within those. And so, across the board, our thesis continues to be validated.

Christina Blaishek - William Blair & Company

Okay, great, thank you. And finally just a follow-up question on the share repurchase program. Given your current share price, are you further assessing the dividend? In other words, any additional consideration regarding further dividend cuts and perhaps an even larger share repurchase?

Bill Doniger

Yeah, this is Bill. It is a reasonable question. I haven't looked in the last week or so, but I think if you look at where our company is trading on a comparable basis versus the other -- our peers, I think we are either kind of trading at the same levels or even and wider in a case or two.

And none of those companies pay a dividend. So if you look at it today, the investor base is giving us really almost no credit for the dividend. The Board right now thinks that what we are paying a dividend is we are more than comfortable with, but also if there is a better use of that capital, there is certainly something that they have to explore or as we said at the beginning of the year, our goal is really to do anything possible to increase shareholder value.

And it will be a discussion item, but it is really something that you want to look at because the stock prices are point in time today. We are seeing lots of positive improvements on the operating side, but a logical conclusion could be is that the stock price continues where it is today, while our operating metrics continue to be what they are, a more dramatic increase in the stock repurchase plan should be a topic of conversation and will be with the Board.

Christina Blaishek - William Blair & Company

Right, thank you.

Operator

Our next question comes from the line of Jerry Doctrow.

Jerry Doctrow - Stifel Nicolaus & Company

A handful of things. Cap Ex, it looked like it was up a little bit on a per unit basis. I was just wondering if you could give us some guidance as to where you expect that going. Really maintenance Cap Ex?

Mark Ohlendorf

There is a little bit of seasonality in the Cap Ex projects, Jerry. We are getting into the summertime where you do increase the volume of some of the outdoor activities at some level. The run rate you see here is somewhat reflective. It could tick up a bit as we go through the summer for sure but I think it is in a range.

Jerry Doctrow - Stifel Nicolaus & Company

For the year basis you were trending out from this quarter that would be a decent run rate?

Mark Ohlendorf

Yeah, and again if it trends up a million dollars a quarter or so, that is certainly possible, but I think this is the right order of magnitude.

Jerry Doctrow - Stifel Nicolaus & Company

All right, that's fine. I want to come back and just talk a little bit more about incentives. Obviously you are having some great success driving occupancy up here. Are you doing discounting, free rents, helping people with moving, any of that sort of stuff? Can we get a little more color on that?

Bill Sheriff

We have always had a basic element of what we call the toolbox that our field folks have at their disposal to effect the closing on a sale. We have added some very select, very focused, modest additional incentives within that that are having effect, and those are, again, used very selectively and very focused in areas. But there is not a significant change in what we've done with regards to incentives?

Jerry Doctrow - Stifel Nicolaus & Company

In terms of average daily rates, entrance fee, receipts per unit I guess you would see those continuing to sort of trend, as we have I guess it has been sort of a 5% sort of move or 5% to 6% move on rates that you still feels good?

Bill Sheriff

Yes, and it’s the combination of all the elements of base rate increase, street rate increase, the investments we are making in repositioning, some sets, and those elements. But we feel that is going to continue.

Jerry Doctrow - Stifel Nicolaus & Company

Okay. Just a couple more. How about tax rate going forward. Is that --

Mark Ohlendorf

I think you will find the tax information in the Q and effectively the taxes we pay right now are state and local taxes which are reflected in the CFFO numbers.

Jerry Doctrow - Stifel Nicolaus & Company

Okay. Okay. And sort of combination, I think. One is, you have given capital markets and stuff, do you plan to continue with all the expansion efforts and repositioning some things under way and then I also just want to clarify how much additional unencumbered assets you have that you could place debt on?

Bill Sheriff

I will take kind of the first part of that which or well, Mark, why don't you take this?

Mark Ohlendorf

As it relates to the unencumbered debt, we can follow up with you late on that.

Jerry Doctrow - Stifel Nicolaus & Company

Okay.

Bill Sheriff

On the expansion stuff, we are continuing as we said earlier in the year. We shifted from those communities that we own to lease communities. We have a pretty healthy step of expansions on the board, and we simply shifted the mix. The [rate] partners are very pleased to fund the expansions on those facilities with very attractive returns.

Jerry Doctrow - Stifel Nicolaus & Company

Okay. And then just one or two global things. I think, Bill, I think I sort of know the answers to this but I think it is one of the things on people's minds. In terms of Fortress, was Fortress a seller of anything stock here in the buybacks and if you could just sort of state again maybe where those investments are held and whether you've got any pressures on redemptions?

Bill Sheriff

No, Fortress has not sold any stock. Obviously we can't comment on what our plans are. This is at least my favorite company. We have no obligation any time soon to sell any stock. And, we are committed to Brookdale and expect to be the largest holder of this company for the foreseeable future. So nothing has changed. And we haven't sold many stocks.

Jerry Doctrow - Stifel Nicolaus & Company

Okay, thanks. And then the last thing is I don't think this is imminent, but obviously the REIT legislation, the legislation that creates some flexibility here. Does that offer any opportunities for Brookdale particularly thinking down the road when the tax shelters start, maybe disappearing?

Bill Sheriff

I don't know at this point in time and that will get into a lot of speculation and there is a lot to be understood and studied about all of that, but there is nothing that we are seeing in the near future.

Jerry Doctrow - Stifel Nicolaus & Company

All right, thanks a lot, guys.

Operator

Our next question comes from the line of Frank Morgan.

Frank Morgan - Jefferies & Co.

Good morning, just to follow-up on the occupancy trends. Just curious about the actual any kind of special incentives or discounts on actual entry fees given that that number has popped up and seems to be growing again at a good rate. And as far as the improvement that we are seeing sequentially so far, do you characterize that as being more than what would typically be seasonal improvement?

Bill Sheriff

On the entry fees, there is nothing significant, nothing different from what we normally do in those areas.

I think it is the basic Xs and Os there, as well as the issue of the pent-up demand and we still got an increasing amount of number of people come in and say I finally sold my home and I am ready to move in, so managing that bigger pipeline for a little more extended period of time, we see good movement.

Unidentified Analyst

I guess as follow-up to that, I was going to ask what people out in the field are saying from an anecdotal basis. Your comments about, I finally sold my home and ready to move. Anything else that you are hearing at the local level, and are you hearing that in any particular part of the country more than another? Thanks.

Bill Sheriff

Well, certainly if there are certain markets that are a little harder, so to speak, than others, but we are seeing movement in all markets.

Unidentified Analyst

Okay, thanks.

Operator

Our next question comes from the line of Rob Mains.

Rob Mains - Morgan Keegan

Yeah, Thanks. First one, Frank's second question, I'd be interested in knowing the answer to it, whether you feel the sequential occupancy gain is greater than what you just would you normally see this time of year?

Bill Sheriff

I don't think there is a seasonality perspective to it, particularly when you look at a couple of the markets that are actually being the softer part of the year and they were actually good participants in the gains. So I think we are not just seeing seasonality here.

Rob Mains - Morgan Keegan

Okay, and then another question on the entry fees. I know that you have a lot of flexibility in some communities about how to structure the entry fees, refundable versus nonrefundable. Anything unusual there, or is this as you kind of suggested just a basic building of the entry fee business as it used to be?

Bill Sheriff

That's always a very dynamic equation that we continually to analyze the mix of sales, offerings of the plans and tweak those, but there is no significant change in the fundamental economics or the basic presentation of what we have?

Rob Mains - Morgan Keegan

Okay. It looks like you are not tweaking, in effect, the supply of the entry fees in any way? This is truly a demand-driven increase?

Bill Sheriff

That is correct.

Rob Mains - Morgan Keegan

Okay. But in your prepared comments, I don't think I wrote it down correctly. I think you said that you are seeing a 3.5% increase there in occupancy markets where there is new sales personnel?

Bill Sheriff

Yes, in that illustration, yes.

Rob Mains - Morgan Keegan

What's going into that? I mean, obviously, I assume this is more than just throwing bodies at it. Is it also the way that you are structuring the sales force is some way?

Bill Sheriff

Well, our reorganization that took place at the beginning of the year changed some significant alignments at all, but it's fundamentally getting people on the ground to where we don't have one sales person handling four buildings, looking at the training, preparation and coordination. And I think on all fronts, we are making good positive strides.

Rob Mains - Morgan Keegan

Okay. So effectively it is kind of throwing bodies at. And as you were understaffed in a sales effort, and now bringing it up to where you need to be to be able to drive the revenues.

Bill Sheriff

I think that is correct.

Rob Mains - Morgan Keegan

Okay, all right. That's what I had. Thank you.

Operator

Our next question comes from the line of Stefan Mykytiuk.

Stefan Mykytiuk - Pike Place

Hi. Good morning, Stefan Mykytiuk from Pike Place. Just wondering, can you talk about move-ins versus move-outs, some of your competitors have talked about that their issue has lately been less about the level of move-ins, but that their move-outs have been higher than normal. And it sounds like from what you are saying, it's your move-ins that have picked up lately and the move-outs are kind of staying flat, is that what you are seeing?

Bill Sheriff

We have actually seen a lengthening a length of stay in our AL and memory care elements of the business, which speaks to a number of different issues when you see the length of stay increasing, but the much bigger increase of it is the increased move-ins.

Stefan Mykytiuk - Pike Place

Okay. Is any change in move-outs then? Material change in move-outs, are people moving back home to save money or things like that?

Bill Sheriff

There is no change, very minor on any piece of that. Nothing that could you say is a major change element.

Stefan Mykytiuk - Pike Place

Okay. So if the move-ins are up, it's obviously demands, or a thick combination of the demands and efforts to market better.

Bill Sheriff

We've made a lot of movements and focus on execution, but we also believe that the pent-up demand and other factors are improving.

Stefan Mykytiuk - Pike Place

Great, thank you.

Operator

Our next question comes from the line of Jay Habermann.

Sloan Bowman - Goldman Sachs

Guys, Sloan actually again, I just have one quick follow-up. Year-to-date, I guess, with regards to paying down the revolver next May. Year-to-date you guys have raised over $400 million through refinancings, or through new debt. Can you give us a sense of what your capacity for new financings or new refinancings are through the rest of the year, and is that the plan to pay down quite a bit of that line?

Bill Sheriff

Well, again, the operative issue I think to the market is, we don't have to do a lot of financing. That's the point. The next maturities we face are '09 and '10 and $50 million and $28 million and $30 million amounts. They are very manageable. We are always assessing the range of financings we can do in the market. It includes debt financing; it includes lease financing and other kinds of financing. So it really becomes a cost to capital and return on capital question at any moment in time.

Mark Ohlendorf

And also, we finance at the asset level as opposed to kind of incremental corporate debt. And as we said our intention is to use the asset-based financing, which is A, available and B, relatively inexpensive especially in these credit markets to pay down our corporate line in lieu of with a tee.

And we have been incredibly successful doing that, I wouldn't say that there is a lot of assets, we do have unencumbered assets. But we don't feel a need to put on any more leverage in this market and more appropriate leverage neither under or overleveraged. But I think our financing for the most part are done for a while.

Sloan Bowman - Goldman Sachs

Okay. I guess we are just trying to get a sense, how much of it's going to come from free cash flow considering also the dividend and the share repurchases?

Mark Ohlendorf

How much of what?

Sloan Bowman - Goldman Sachs

How much of the capacity to pay that debt down?

Mark Ohlendorf

Again, I think the line is, I don't know, $50 million now. It's asset maturity, it should be there or below that. And so we have assets, but again a $50 million corporate line in this company there is plenty of option there. So it might be gone, but we already have a number of options just replace that.

Jay Habermann - Goldman Sachs

Hey, guys. It's Jay with one quick follow-up as well. Can you just comment on are your lease rates fairly predictable for the next year or so, or do you have any resets that might affect the expense there?

Bill Sheriff

We do not have any substantial resets. You do have the normal bumps in the rents as go along, but these leases are generally long-term in terms of the profile?

Jay Habermann - Goldman Sachs

Yes, so nothing in the near-term that would change that to any degree other than just normal resets?

Bill Sheriff

Correct.

Jay Habermann - Goldman Sachs

Okay. Thank you.

Operator

Our final question comes from [Chung Wan-Yi].

Unidentified Analyst

Hey, guys. Just going back to the RC, so $50 million was drawn at the end of the quarter. What is drawn it at this point? How much is drawn on it right now?

Bill Doniger

Again, we report financial information quarterly. It’s a similar number.

Unidentified Analyst

Got you. And then has the commitment, 270 gone down at all. I see that you have some proceeds and so forth or is it still at 270?

Bill Doniger

There is, as we do re-financings, it sounds like you read the amendment to our credit agreement?

Unidentified Analyst

Yes.

Bill Doniger

There is a Byzantine formula which I won't even try to recite that does change the capacity, depending on volumes of proceeds over target levels.

Unidentified Analyst

Right.

Bill Doniger

The maximum commitment has come down somewhat. I mean we don't need a line that of the size that it was because we were doing lots of acquisitions. And so paying for something you don't need and so what we basically did was agree to reduce it which we were going to do anyway on exchange basis for ability to buyback stock. But, again, as long as we are not making acquisitions of $50 million kind of revolvers about the right size of thing.

Unidentified Analyst

So what’s the commending amount on the RC now then?

Bill Doniger

It's about $180 million to $185 million in terms of cash borrowing capacity.

Unidentified Analyst

Cash borrowing capacity. Okay.

Bill Doniger

Yes.

Unidentified Analyst

And then, the $20 million that you guy repurchased, that goes to $50 million so you guys have $30 million more before that kicks in as well too in terms of the dollar-for-dollar reduction on the RC?

Bill Doniger

Again, I don't want to try to recite the formula in the credit agreement here. It isn't quite that direct of a relationship. Our cash borrowing capacity now is $183 million, I believe.

Unidentified Analyst

Okay. All right, great. Thanks a lot, guys.

Bill Doniger

With that, we would like to thank you for your participation. We will be around. Give us a call if you have follow-up questions. Thank you very much.

Operator

Ladies and gentlemen, thank you for joining us for today's Brookdale Senior Living second quarter 2008 Earnings Call. This does conclude today's conference call and you may disconnect your lines.

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