Ross Roadman T. Andrew Smith - Chief Executive Officer Mark W.

Ohlendorf - Co-President, Chief Financial Officer and Principal Accounting Officer H. Todd Kaestner - Executive Vice President of Corporate Development Ross C.

Roadman - Senior Vice President of Investor Relations

Frank G. Morgan - RBC Capital Markets, LLC, Research Division Darren Lehrich - Deutsche Bank AG, Research Division Jack Meehan - Barclays Capital, Research Division Ryan Daniels - William Blair & Company L.L.C., Research Division Daniel M.

Bernstein - Stifel, Nicolaus & Co., Inc., Research Division Dana Hambly - Stephens Inc., Research Division Kevin M. Fischbeck - BofA Merrill Lynch, Research Division

Thank you, Mel, and good morning, everyone. I would like to welcome all of you to the first quarter 2013 earnings call for Brookdale Senior Living.

Joining us today are Andy Smith, our Chief Executive Officer and Mark Ohlendorf, our Co-President and Chief Financial Officer. I would 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 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. With that, I'd like to call -- turn the call over to Andy Smith.

Andy?

Good morning, and thank you for being with us. I will lead off today with some brief comments about the first quarter and our outlook for the rest of 2013.

I'll then turn the call over to Mark to discuss our results in more detail before opening the call to your questions. We are quite pleased with our first quarter results.

They give us a solid start toward achieving our goals for 2013. Our adjusted CFFO were $0.57 per share, was a 20% increase over the first quarter of last year.

We grew revenue about 4.6% excluding reimbursed managed community cost. This was marginally above our target range and was driven by occupancy growth, strong pricing, returns on reinvestment in our portfolio and growth in our ancillary services platform.

We produced a 70-basis-point increase in occupancy, compared with the first quarter of last year, and senior housing revenue per unit improved 2.8% period-to-period. These results were driven by better execution, and were supported by an improving economic environment and a stabilizing home resale market.

On a sequential quarter basis, we saw typical seasonal softness with occupancy decreasing by 20 basis points. We had a strong move -- we had move-ins in the first quarter and actually moved in more residents than we anticipated.

Unfortunately, we also had more move-outs than we anticipated. This was the result of a much more severe flu season, which led to increased death and health-related move-outs.

We expect to overcome this seasonal softness and the move-in strength of the first quarter reinforces our expectations for improved occupancy for the balance of the year. I'm also very pleased with the progress we made in the first quarter with cost control.

Our first quarter senior housing operating expenses grew by 2.7% over the first quarter of last year, increasing our senior housing facility operating income margin by 80 basis points. Our adjusted EBITDA grew right at 12% year-over-year.

Mark will provide more details, but the cost control initiatives we began in 2012 are bearing fruit, particularly with our labor cost. We are extremely excited to have launched our new multilevel branding initiative.

We believe this will be a real game changer for Brookdale. It is designed to leverage Brookdale's comprehensive service continuum and national presence to establish our identity as the only clear national senior living brand.

We expect the branding initiative to increase awareness and preference for our services and to generate more leads and to improve our lead conversion and move in ratios. Equally as important, our branding initiative will galvanize our associates and reinforce our culture by providing a common voice focused on our mission of enriching lives.

Tune in to CNN, Home and Garden TV, The Food Network and the Hallmark Channel for Brookdale television ads. And look for print ads in the coming weeks in Better Homes & Gardens, Real Simple, More, and the Ladies Home Journal.

By the way, consistent with our ongoing focus on cost control, I'll note that the incremental cost of our branding initiative is not significant because we are funding it primarily by shifting resources within our existing sales and marketing budget. As part of our organic growth strategy, we are continuing to invest heavily in renovating our communities to improve their competitive position and to drive occupancy and rate growth.

Last year, we wholly or partially renovated 126 communities. We expect to reach roughly that many communities this year as well.

We are also actively repositioning our assets to meet the evolving needs of our residents through our Program Max initiative. We have 27 projects currently under construction.

As we've said before, reinvestment in our portfolio continues to be our highest priority opportunity for capital investment. Turning to ISC, the first quarter performance of our ancillary services segment met our expectations.

This business will be somewhat challenged over the rest of the year by sequestration and partly therapy reimbursement pressures. However, our expectations for the year take these challenges into account, and we are working on a number of mitigation strategies.

We make further progress rolling out our hospice care service line during the first quarter. We opened 2 additional markets to hospice care and into the quarter, providing hospice services in 6 markets.

We expect to open at least 3 additional hospice care markets before the end of 2013. And we continue to see our ancillary services platform as a key differentiator for Brookdale.

This platform enhances our ability to offer the most comprehensive integrated continuum of care for our residents. While our primary focus remains on organic growth, we are continually evaluating acquisition opportunities.

Although we are not dependent upon acquisitions to meet our objectives, we are confident that we have the experience and the resources to pursue and successfully effectuate, appropriate acquisition opportunities. On the capital market side of the business, we continue to enjoy ready access to attractive debt capital and we are ahead of pace in executing on our 2013 refinancing plan.

We continue to spend time and energy analyzing our capital structure, but I'm sure you will understand that we cannot comment further on the topic at this time. In conclusion, we are very pleased with our first quarter results.

We believe that the positive operating momentum from 2012 is continuing, positioning us for success in 2013. I want to thank all of our associates for their hard work each and every day serving our residents and their families.

And in particular, I want to thank John Rios, who recently announced his upcoming retirement as Co-President and Chief Operating Officer. John has been a valuable member of our Senior Management team.

We are happy and excited for John as he embarks on his new opportunity to teach at Cornell. We will miss him of course, but we have a deep pool of talented management that John has helped to groom to move the company forward seamlessly.

As such, John thinks that the time is right for him to retire, and we expect the transition to go smoothly. Finally, I want to thank you for your interest in Brookdale.

Now, here's Mark to review our financial results in more detail.

As Andy said, we're pleased with the quarter's results. We saw the continuation of favorable revenue trends from 2012.

And we made progress in areas that we've been focusing on, particularly on the cost side. As we look at our key financial performance measurements, we had a good start towards achieving our 2013 goals.

Excluding certain items from both periods, our Cash From Facility Operations, or CFFO, for the first quarter totaled $69.9 million, a 20% increase over the first quarter of 2012, and adjusted EBITDA was $112.4 million, a 12% year-over-year increase. We also had positive GAAP net income in the first quarter for the first time in the company's history.

We drove topline revenue growth of 4.6% for the first quarter -- over the first quarter of 2012. Occupancy grew by 70 basis points year-over-year.

Looking at the year-over-year growth and occupancy by segment, Retirement Centers were up 70 basis points, Assisted Living, up 60 basis points and together, the CCRC segments up 100 basis points. Looking at the year-over-year occupancy growth by unit type, IL was up 70 basis points, AL up 90 basis points, with Memory Care and Skilled Nursing up just slightly.

Our sequential occupancy was down overall 20 basis points from the fourth quarter of 2012, reflecting first quarter seasonality, where we had a very good move-in quarter nonetheless, with move-ins up almost 7% from a year ago. Inquiries were also up 7%, compared to the first quarter of 2012 and lead contacts by our salespeople were up 14%.

We focused on improving the information available to our sales teams on each lead by using new resources like call centers that are adept at capturing and matching information from prospective customer increase across the range of lead channels, including increasingly from the Internet and social media. This has increased sales efficiency and volume.

We did see an effect of a more severe flu season this winter, along with the normal first quarter seasonality, resulting in higher move-outs in the first quarter. Our move-outs were over 10% higher than last year and much of that was due to an increase in deaths.

As you would expect, the increased move-outs were concentrated in the higher acuity products like Assisted Living and Memory Care. Certainly, the better-than-expected move-in performance bolsters our expectation for occupancy improvement over the balance of the year.

Again, we believe that this strong move-in performance has been driven by strong sales execution, portfolio capital investments and an improving economy in housing market. During the first quarter, we saw similar pricing strength as we saw in the fourth quarter of 2012, with a 2.8% year-over-year increase in Senior Living revenue per unit.

We increased the in-place resident rates in the Assisted Living and Memory Care communities, roughly 44% of our consolidated capacity, a little bit over 3% on January 1. We continue to be diligent about maximizing pricing in each market and look for opportunities to increase street rates where we can.

The 2.8% revenue per unit increase was a little above our expectations and more than made up for the slight occupancy shortfall to our expectations, given the spike in move-outs. Our ancillary services business produced $60.2 million of revenue, an 11.8% increase from the first quarter of 2012.

We saw a nice increase in Home Health volume, continuing to come from the maturation of the rollout to the former Horizon Bay communities. We also saw a decrease in volume in our outpatient therapy business, as residents deferred therapy in fear of the new approval caps.

Ancillary services' operating income for the first quarter was up 14.9% from the first quarter of 2012. We benefited from the delay in the effective date of sequestration, but we did have some impact in the first quarter.

As we expected, there was a rate reduction related to home health episodes on case load on April 1 that were admitted in the first quarter, resulting in effective Home Health reproductions impacting services as far back as February. There are numerous pluses and minuses going on with the economics of the Ancillary business, as we look to the balance of the year.

We'll continue to have growth particularly in Home Health and are focused on cost mitigation strategies in Home Health as well. Conversely, the Outpatient Therapy, MPPR, reduction began April 1.

Sequestration is also in full gear as of April 1 and a continued uncertainty of therapy claim review cap weighed on therapy volume. We still expect full year operating income to be equal to last year's operating income in our ancillary services segment.

Our Independent Living entry fee sales were on par with historical seasonal trends. Gross entry fee receipts were 12.6% higher than the first quarter of 2012.

The total dollar amount of entry fee refunds was up 15%. Refunds vary based on a number of factors, such as the type of contract associated with move-outs and the unit type.

Our $7.6 million of net entry fee cash flow was approximately $700,000 higher than the first quarter of 2012. In summary, entry fee sales activity remained strong, though the first quarter trends -- the first quarter tends to be the lowest sales quarter of the year.

Looking at our same community data for senior housing for the first quarter of 2013, compared to the first quarter of last year, our senior housing same communities produced a 3.6% increase in revenue due to a 2.6% increase in revenue per unit and a 90-basis-point improvement in occupancy. Of course, the important story for us was the modest 2.4% increase in expenses.

We talked last quarter about some of the changes we've made to our operations organization to improve operational performance and about other cost control initiatives we had underway. One is to improve the matching of labor requirements and labor resources deployed, particularly in our larger communities.

We, in fact, incurred minimal year-over-year growth in total compensation costs, although recall that this year has one less day in the quarter than last year. We achieved the savings in our employee medical plan we expected in the first quarter from both a lower number of high-cost claims and from changes we made to our plans this year.

We're encouraged by these results. Same-store operating income grew by 6.1% versus the first quarter of 2012.

This was the strongest operating income growth we've seen since mid-2009. General and administrative expense was $46.6 million for the quarter.

Included in G&A cost was noncash stock-based compensation expense of $6.9 million and integration transaction related in EMR roll-out costs of $2.1 million. General and administrative expense, excluding those 2 items for the quarter, was $37.6 million, which was 4.8%, as a percentage of total revenue under management.

Our Q1 spending on routine CapEx, which we reflect in our CFFO calculation, was $9.3 million. During the quarter, 2 communities were purchased by one of our RIDEA joint ventures, adding 2 communities and 263 units to our managed segment.

Also in the first quarter, we divested 2 underperforming owned Assisted Living communities, that had a total of 115 units. We also opened 3 new third party managed communities, with a total of 320 units.

As the press release we released last night describes, we've been executing our plan to refinance our 2013 maturities. We recently completed 3 refinancing transactions that effectively repaid $339 million of mortgage debt on 30 communities and replaced it with $312 million of mortgage debt on 26 communities.

We moved the 4 communities that became unencumbered to the recently expanded and lower cost line of credits borrowing phase, increasing that capacity by approximately $26 million, and giving us flexibility as to how and when to access that capital as necessary. These transactions took care of approximately 50% of the 2013 maturities.

We have additional transactions in process. The net effect on our interest cost when all of the 2013 maturities are refinanced, will be minimal.

As Andy said, the first quarter was a good start to the year. It's only 1 quarter.

And while it gives us a sense of encouragement at this point, we're not changing our full year CFFO guidance of $2.30 to $2.40 per share. This guidance does not include the impact of future acquisitions or dispositions, nor the expenses from transactions, integration and EMR roll-out costs.

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

And then just want to ask about -- we're seeing data about half -- prices of houses have obviously, showing some of the best increases in some time. Are you seeing that in any of your markets at any particular, geographic areas of the country where you're seeing more activities -- more move-in activity or more interest in moving in, as a result of just the overall real estate market?

We're seeing firmness in really everyone of our local markets. And you're right, it's driven by a strong resale market for single-family homes.

But we're seeing that uniformly across each of our markets and there's no particular geography we'd want to point out other than just reaffirm that strength across the entire platform.

Okay, and then just curious on couple of small matters. Any initial thoughts on the SNF rule that came out yesterday in terms of the therapy component of that?

Or do you have time to look at it?

Well, we've just started looking at it. The rate improvement was, in our mind, good.

It could have been worse. We don't think at least, preliminarily, the re-basing and other elements that CMS released are going to be deleterious to Brookdale.

Mark, do you want to add anything?

No.

Okay, and then just 2 more and then I'll hop off. The likelihood of timing on your new COO.

And then update on kind of the NOLs and the tax issues when you potentially become a taxpayer? and I'll hop off.

Sure. When John announced that he's going to retire on the 15th of June, and we'll have an announcement right around then, again, we've spent a lot of time planning succession for all of our senior officer team.

And John's worked hard on that. He feels good about this being the right time for him to retire.

So we expect that to be seamless.

And on the tax side, it -- similar to what we've said for the last several quarters, we expect to begin to become taxable in 2016. And then become effectively fully taxable in 2017.

So it probably moved out by a quarter or 2 in terms of our taxability from what we would have said 2011 or 2012. A lot of that relates to the deductibility of some of the non-recurring costs we've had, integration cost, EMR roll-out costs, but it's pretty similar picture to what we've had for the last couple of years.

In terms of just your expectations for occupancy. Should we continue to look for the sequential build starting in the second quarter, like we've seen in the past?

And I'm just wondering if any of the factors that played in seasonally in the first quarter might alter that pattern at all this year?

We don't think so, Darren. We think we'll build occupancy through the balance of the year, and we believe this first quarter of softness is expected or certainly seasonally typical and we've seen a turn, we think beginning in April, and we think that will build for the balance of the year.

Okay, that's great. And then I guess just a question -- I wanted to get your thoughts about supply growth.

There's been just a little bit of a tick up in Assisted Living supply according to some of the NIC data. And I'm just wondering if you're seeing that in any of your markets as having a potential impact to your occupancy growth?

And whether there's any markets that you're seeing any type of imbalances?

Well, we're certainly not seeing any imbalances, even though growth in new supply has ticked up a little bit, primarily in the Memory Care segment of the business, and in many cases, it's been expansions of existing communities as opposed to de novo development.

Great.

But we think that, that growth is still right around 2%, 2.5% of overall inventory and it's still relatively modest and is -- at least currently is not affecting us. So it's something we keep an eye on, but we're not seeing any negative effect at the moment.

Okay, that's what I thought. And then just last thing, and I'll jump back in the queue here.

I think if I heard you right, Mark, we shouldn't expect any change in the interest rates overall from all the refinancing you're working through. I guess, just relative to the terms of the new mortgage debt that you spiked out in the press release, relative to the mid-4% weighted average, I think that we seen in the 10-Q or 10-K, where did that come out just on the $300 million or so that you refinanced?

Well, there's a number different refinancings that have had occurred here. You do see slightly different pricing on different product types.

We're dealing with a pretty low rate environment right now though. The 10-year continues to be low, LIBOR continues to be low.

Spreads have tightened a little bit over the last year, 1.5 years. So I guess what we're trying to say is, on an all-in weighted average basis, the interest expense will be similar when the refinancings are done.

Though of course, every individual financing instrument maybe a little bit different than the one it's replacing.

I was hoping for a little more detail on the national marketing. How quickly do you expect this to show up in the results?

And what do you think the incremental return is on investments compared to the previous marketing strategy?

The -- first off, let me say, this is a near-term, an intermediate-term and a long-term effort by Brookdale. Again, as I said in my formal remarks, we think it's going to be a real game changer.

That having been said, it's going to build gradually as we move through this year and the future. And it's -- I don't think I can give you an expectation of a return on investment, that's particularly isolated to our new branding initiative.

Again, I'll reiterate that the cost of it we think will be not terribly significant because we believe we can more efficiently use our other marketing and sales dollars, but we don't have a particular ROI that we can give to you to build into your model.

Okay, but did you think it is something that could show up by the end of the year in occupancy?

I think we absolutely believe it will help us improve our occupancy and will assist us in building our occupancy through the balance of the year. Now, I have to say, if we've reported previously, we are expecting pretty robust occupancy growth through this year.

And we knew we were going to adopt this branding strategy when we developed our plan for the year as well.

Okay, and then just switching topics. In terms of acquisitions, is there a level of leverage that you feel comfortable operating the business at?

And are there any other constraints that we should be thinking about when you evaluate opportunities?

Well, on the leverage front, we've announced the target, but the target to run in about 6x EBITDA, and each particular acquisition, of course, we look at leverage and think of it as having a generic or if it's -- all else equal, we would have a leverage range of say 60% to 70% LTV. There are no other constraints on our ability to do acquisitions other than finding the right opportunities that make tactical sense for us and being able to get them at the right price and we're constantly looking out for those type of opportunities.

Let me start just for data point you've given us in the past. I mean, you've talked about how many of your facilities were at or I think in excess of 95% occupancy.

Do you have that metric for the first quarter available?

Ryan, I don't have it right in front of me here. I know that, that number did decline slightly as we went through the quarter.

You'd expect that to be the case when we're going through the seasonally soft first quarter. I think probably the most significant thing that we saw in the first quarter, obviously, we are forecasting some meaningful occupancy growth this year.

Our guidance was a little over 1% year-over-year occupancy growth. Effectively what that means is, that we need to move the occupancy in the lower strata of occupancy.

And we did see good progress in the first quarter on filling vacant units in our lower occupied portfolio. Again, that gives us a bit more confidence that we'll be able to meet those year-over-year occupancy targets that we've guided people to.

Okay, and have you thought on pricing changed at all, just thinking of maintaining a pretty decent chunk of your portfolio at that 95% or more level and filling up of lower occupancy units? And, I guess, also maybe this isn't a big impact, but having higher move-outs, are you seeing street rents higher when people move in?

So how does that all equate to your pricing thoughts?

I think the net effect of all of it, at this point, is relatively unchanged. Really, the data points we've got out of the first quarter were -- compared to our original guidance now, occupancy, a little bit under where we had thought we would get to.

Again, driven largely by the more severe flu season and move-outs. And REIT, slightly above where we had anticipated.

Remember that -- in January, we increased in-place resident rates, particularly in the Assisted Living and Memory Care part of the portfolio. So that rate increase was modestly higher than what we had originally forecast for the year.

But, at this point, they're relatively minor pluses and minuses there that really offset each other.

Two more quick ones. Looking at some of the financial data and the supplementals, it looks like the segment operating margins in the entrance fee communities was extremely impressive, I think it was up about 690 basis points sequentially.

Anything in particular that's driving that margin profile up so nicely, especially relative to some of the other areas, which are still up, but not nearly as much?

Sure, it's really a couple things. Recall, as we went through the second, third and fourth quarter of 2012, we had very strong net entry fee cash flow performance.

The consequence of that is the occupancy built in that segment over last year. So what you really have in the first quarter numbers and the numbers going forward in that segment is a higher structural occupancy level, so that will certainly give us an NOI lift.

The other thing that occurred in both the entry fee segment and the rental CCRC segment in the first quarter, it's kind of the inverse impact of the flu season. Our occupancy in the Skilled Nursing part of those campuses was quite strong in the first quarter.

Again, move-out is a negative impact of the flu in the Assisted Living and Memory Care segment, but it's a modestly positive impact in the Skilled Nursing part of the -- both entry fee and rental CCRC segment. So it's really the impact of both of those things, as well as kind of the initial impact of some of our cost control strategies, that's driving the margins up a bit in that segment.

Good morning. I just wanted to ask about the -- on the -- just the general attitude of people looking at weeds and move-ins.

Are they looking at larger units today than they would have been say last year, or higher-priced units, or are you still seeing some impact from the economy on people wanting to have lower cost units? Or even within facilities moving from higher pricings down to lower cost units that could impact your rate growth good or bad?

I don't think there's any trend, Dan, that we can report on -- directed at your question. I'm not sure if we can generalize it in any sense.

I mean, we do think that the environment is improving pretty steadily, but in terms of the types of units, that type of thing, I'm not sure there's anything we can generalize.

You obviously had a really very good quarter across all your business segments. Was there anything in the quarter that did not meet your expectations in terms of performance when you look back?

We really need to work on this a little bit more going forward, that you hadn't identified previously, say, in the marketing or elsewhere?

Well, we were pleased with quarter as you indicated. We always think there are things that we need to work on.

And that's one of the things the organization is going to focus on continually getting better. I don't think there's anything that we would point out though that was worse than our expectations.

Okay. And then on the -- when you're thinking about acquisition opportunities, do you have additional opportunities in your leases to go ahead and pick up some more properties on balance sheet this year, whether that would be in the bargain purchase options where you have those or even fair market value?

Do you think there are some opportunities this year to bring some more assets back on balance sheet?

Well, we're constantly in dialogue with our REIT lessor partners to see if it makes mutual sense for both of us to -- for to us to buy the asset back. But I don't -- we don't have any contractual options that are available to us this year.

Okay. And then just one final question here.

In terms of mitigation of sequestration MPPR and other pressures in the ancillary side, what are you able to do this year that you could not do last year when you were adjusting to, obviously, the larger Medicare cuts that came in fiscal '12? I would think the impact of any cuts -- any impact on Medicare revenues in therapy or Home Health would be impactful today than '12 ?

And so I'm just trying to think about where -- what are your mitigation options this year?

I'll take the first crack at that Mark, you can add to it. We've tried very hard to control our labor cost in the ancillary services platform, including holding back on increases to salary and wages.

And we've also tried to more tightly tie our productivity standards to compensation in a way that we think will improve and mitigate some of these effects. We're also trying very hard to educate folks who could benefit from our Part B services in the Outpatient Therapy line to have the cap works.

And what it means, and what it doesn't mean, because right now, there's just a lot of confusion about how the manual review process actually works and it's frightening people. And so we're trying very hard to educate folks about how to think about that manual review process as well.

Mark, do you have anything to add?

No, I think that's right on point.

On the same store NOI growth, Mark, I think you mentioned it was the strongest since mid-2009. I'm just trying to parse out what of that was on the expense side, and then, what was really -- what was on the leverage from the incremental occupancy?

That's good question. It -- probably more so on the expense side though certainly when you grow occupancy 70 basis points period-to-period, it also helps the growth rate there.

The rate growth within the revenue numbers is then reasonably consistent for the last 2 or 3 quarters. So it's difficult to characterize something this generally, but I would say the bigger driver is on the accelerating NOI growth relate to a lower growth rate in expenses and the occupancy growth.

Okay. That's fair and I guess we're lapping a pretty weak year on NOI growth.

So, do you think we can -- I know you benefited a little bit from the leap year, but should we think about mid-single digits on that, is that the right number?

I believe implicit in our guidance would be same-store NOI growth rates at or a little above this level. Again, we did guide people to 1%, 1.25% of occupancy growth year-over-year.

So the impact that occupancy growth on the NOI growth rates will grow modestly as we go through 2013.

Okay, and then Andy, in your prepared comments on the acquisition environment, I'm not sure entirely I understood that. Are you seeing stuff that you're passing on or is it the prices aren't right or is it -- you would rather invest in your own portfolio now?

Well, on that latter point, we do believe reinvestment in our portfolio is our highest priority use for our capital. We are continually seeing -- we're seeing a steady flow of acquisition opportunities that we're analyzing and in discussion with potential counterparties on.

The -- but, it's hard to get -- or it's not easy to get acquisitions that fit the profile that we have, that both makes sense for us tactically to execute upon them. And then we get them at a value that we feel is commensurate with what we're buying.

And we bring some special or some unique factors to the table when we execute upon an acquisition because we've got cost savings that we can bring to bear generally speaking, compared to the sellers immediately. And then we have the ancillary services platform that we can export to the acquired communities, which generally would increase our yield, as compared to the seller's yield, but we want to be very judicious and careful where we spend our capital on acquisitions, so we're seeing a steady flow of opportunities and we're just trying to be careful about what we execute.

Okay. That's fair.

Last one for me. Mark, you talked about the original assumptions on occupancy and rate.

I just want to make sure on the rest of the assumptions -- integration cost and maintenance CapEx and, I guess, the last one was entrance fee -- are those all the same assumptions when we think about CFFO for the year?

Yes. At this point our guidance in total and the various elements of the guidance is unchanged for the year.

You mentioned in the remarks that there was an acquisition from a RIDEA joint venture. Can you talk a little about what you're doing there?

How much money are you allocating towards things like that? What kind of transactions?

It sounds like you're just doing kind of one-off, small transactions in that. But I just wanted to see how you were thinking about that.

Well, we don't have any specific allocation to that type of activity. We do own right at 20% of those joint ventures and it just -- the circumstances of that particular opportunity made sense for us to fold that into an existing partnership that we had with one of the health care REITs.

We look at acquisitions opportunistically based on the facts and circumstances that are present for each particular opportunity. I don't think there are any general rules or guidelines Kevin that we can give you on that.

Well, I guess, are you going to them and saying we want to partner with you? Or are they coming to you and saying we're buying a facility, we wanted to be partner here?

It can be either way and it can be with multiple counterparties.

Okay, and then I guess on the Ancillary business. I think that maybe you answered this already to some degree as far as the caps.

But the same store numbers were down pretty significantly on a revenue basis like 13%. I just want to get some color there?

How much of that is the rate cuts versus how much of that is either the economy or some of these other things like the benefit caps?

Sure. The same-store numbers that we report for the Ancillary business are actually about half of the Ancillary business.

And it would be -- the half of the Ancillary business that's been around for a couple of years, that effectively is what the same-store definitions are going to draw out. So that -- the same-store part of ISC that we're reporting is going to be disproportionately Outpatient Therapy, compared to the overall business of ISC.

So it's impacted by the things that impact Outpatient Therapy volume and performance. We have had some refresher in that part of the business over the last couple of years.

And then of course, the manual medical review cap that we've been talking about. So those are going to be the larger drivers there.

Okay. And then I guess the last question.

You talked about repositioning a lot of your facilities or renovating them at least last year and you're going to do similar number this year. How do you think about owning versus leasing assets in the context of that?

I mean are you disproportionately doing it on the owned assets versus the leased -- who's financing it on those leased assets? Where is the most opportunity?

We are -- first off, we manage our owned assets the same way we manage our leased assets. The renovation work that we do is not disproportionate to our owned or our leased assets in any material respect.

In some cases, for larger renovations -- in some cases, the lessor could in fact, reimburse us for those costs, but for the most part, that's money out from our pocket and it's part of our obligation under our leases. Now Program Max, which is a bigger repositioning event, we have alignment with each one of our landlords as to the desirability of doing those type of projects.

I think we, philosophically, are 100% in agreement with one another in each and every case, but there's a level of complexity just because there's a different contractual arrangement and another party that's involved that can make it a little bit more difficult in terms of timing to actually get those projects underway. And in many cases, our REIT landlords are in fact funding those Program Max type of investments on their assets.

It does. It's helpful.

I guess it's just like when you look at the owned assets versus the leased assets, it does look like the owned assets have a little bit higher occupancy and they also have a little bit higher rent. And I don't know whether that's just a function of mix or whether it's a function of more flexibility to do things that you want to do on owned assets.

Jeff I think that's almost purely by chance. I don't think you could read anything, into the difference.

Obviously, different assets at different rates structures depending on the market we're in and what the product type is. It would have much more to do with that than the underlying financing of the assets.

Thank you Mel. With that, we like to thank you for your participation.

We will be in a number of conferences on the East and the West Coast the rest of this month, so we look forward to seeing some of you at those conferences. We'll be around the rest of the day if you have any follow-up questions.

So with that, thank you very much.