Ladies and gentlemen, welcome to the quarterly results conference call. At this time, all participants are in a listen-only mode, and later we will conduct a question-and-answer session with the instructions being given at that time. (Operator instructions) As a reminder, this conference is being recorded. I will now turn the conference over to our host, Mr. John Buono, Chief Financial Officer. Please go ahead, sir.

Good morning, ladies and gentlemen. And welcome to the Assisted Living Concepts Investor Conference Call. I'm John Buono, Senior VP and Chief Financial Officer. With me here today are Laurie Bebo, our President and CEO, and Eric Fonstad, our Senior VP and General Counsel. A replay of this call will be available approximately one hour from its completion until September 6, 2008. You can access the rebroadcast by clicking on the Investor Relations section of our Web site at www.alcco.com or by dialing 800-475-6701 or international 320-365-3844 and using the access code 953000. Ms. Bebo will comment on our second quarter operations as well as provide information on our expansion program followed by my presentation of the financial results for the quarter. We will then welcome your questions. But first, please note that this discussion includes forward-looking statements regarding our future operations. Such statements involve risks and uncertainties that may cause actual results to differ materially from those expressed or implied today. These risks included those listed in our public filings with the Securities and Exchange Commission. We suggest that you refer to these filings. In addition, our remarks include certain non-GAAP measures. Please see our earnings release issued earlier this morning for the reconciliations of these measures to the corresponding GAAP measures. These materials can be found through our Investor Relations section of our Web site at www.alcco.com. Now, I will turn it over to Laurie.

Thank you, John. The second quarter of 2008 produced strong EBITDA margins of approximately 31%. Important contributing factors to the improvement in margins over the prior year, and the sequential quarter periods are the growth in the percentage of our private pay residents and our ability to continue to successfully manage variable expenses consistent with the needs of our population. The maintenance of our overall rate structure, along with a shift to a higher percentage of private pay residents has allowed us to achieve high margins in light of an overall decline in occupancy. Second quarter 2008 margins compared to the first quarter of 2008 benefited from the decrease in utilities expenses due to seasonality. Our second quarter of 2008 did not have our company's annual conference expense as did the second quarter of 2007. We expect approximately $500,000 in additional G&A expense in the third quarter of 2008 for this year's conference. Average private pay occupancy in the second quarter of 2008 increased by 189 units over the second quarter of 2007. The increase includes the addition of 481 occupied private pay units in January 2008 through the acquisition of CaraVita and 85 occupied private pay units in July 2007, through the acquisition of a residence in Dubuque, Iowa. This increase was partially offset by a reduction of 377 private pay occupied units in our same residence portfolio. Average private pay occupancy in the second quarter of 2008 decreased by 150 units as compared to the first quarter of 2008. Occupied Medicaid units in the second quarter of 2008 decreased by 681 units as compared to the second quarter of 2007. Average Medicaid occupancy in the second quarter of 2008 decreased by 110 units as compared to the first quarter of 2008. So far in 2008, we have seen…

Thank you, Laurie. Earlier this morning, we released our financial results for the second quarter ended June 30, 2008. In July 2007, we acquired a residence located in Dubuque, Iowa, and in January 2008 we acquired the operations of eight residences comprising the CaraVita portfolio of properties. Each of these acquisitions is included in our results from their respective dates of acquisition. When I refer to same residence bases, I am excluding from the current year's results the 566 residents added from the acquisitions of CaraVita and Dubuque which were not included in the second quarter of 2007 results. Revenues of $57.9 million in the second quarter of 2008 were a 0.7% increase from $57.4 million in the second quarter of 2007, and a 4% decrease from $60.2 million in the first quarter of 2008. On a same residence basis, revenues were $52.9 million in the second quarter of 2008, a decrease of 7.8% from $57.4 million in the second quarter of 2007. Overall increases in revenue from the 2007 second quarter resulted from $4.9 million additional revenues associated with the acquisitions of the Dubuque residence and the operations of CaraVita, and overall same store rate increases averaging 9.6%. These increases were partially offset by a decrease of 681 units occupied by Medicaid residents and a same store decrease of 377 units occupied by private pay residents. Decreased revenues from the 2008 first quarter resulted primarily from a decrease of 110 units occupied by Medicaid residents and a decrease of 150 units occupied by private pay residents. Residence operations expense decreased by $1.2 million from the second quarter of 2007, primarily resulting from reductions made to variable labor expenses to offset the occupancy decline, partially offset by additional operating expense from the acquisitions. Residence operations expense declined by $1.9 million…

(Operator instructions) Our first question from the line of Frank Morgan with Jefferies & Co. Please go ahead.

Good morning.

Good morning.

I was hoping you could help us. You threw a lot of numbers out there pretty quickly, but could we go back and kind of separate the activity of the buildings that you don't have Medicaid from the Medicaid buildings where you have that strategy to reduce the occupancies. Could you maybe talk a little bit about what the move-out, move-in trends were sequentially across the months of the quarter for both sets of buildings? And then maybe remind us how much more is your target in terms of reducing the overall Medicaid census? How much more of this do we have left? Thanks.

Thanks, Frank. Basically, what we saw for second quarter is that the buildings that have not had or do not have Medicaid contracts were the buildings where we had more move-outs, and that would be pretty similar for all the months in the second quarter. As far as your follow-up question on what do we expect yet for discharges from the buildings where we've had Medicaid contracts or still have Medicaid, but don't allow rollovers, we've seen that number continue to come down quarter after quarter, and we talked about that last quarter as well that we were seeing a decrease there. We think that we're always going to have some exits or move-outs due to folks running out of funds, perhaps or changing their financial situation. And we don't see any large numbers coming from those buildings, again, over the last several months as far as move-out. So we aren't expecting any new spike with those buildings as far as move-outs related to running out of funds. We think that it's been made very clear over the last year now as far as what the opportunity is for rollover, and the fact that it doesn't exist, and we think that people who thought they were or planned to be in a situation where they would need Medicaid have already made the decision for the most part to leave.

But you haven't seen any improvement, you said move-outs were more than move-ins on the non-Medicaid buildings. You didn't see any change over the course of the quarter. Did move-in activity pick up at all? I understand that move-outs are still more, but did move-n activity accelerate in any way? We just have heard anecdotally from some other providers that things seemed to have turned, and in some cases, it was during the quarter, and for other companies it actually happened since the end of the quarter. So, did anything happen during the quarter? And what's been your experience so far in the current quarter? Thanks.

As far as the second quarter is concerned, yes, we did mention that we had – we have seen a decrease in the number of move-outs month over month for the second quarter, and the move-ins have continued to be strong. And we also mentioned that July we've actually seen an uptick in the average for the private occupancy.

Thank you. And our next question from the line of Kevin Ellich with RBC Capital Markets. Please go ahead.

Good morning. Thanks for taking my questions. First off, average daily rate looks like it was pretty flat sequentially. What's going on there? I mean we saw a nice year-over-year increase, but private pay looked a little bit low sequentially. Any change in strategy?

No. Kevin, as far as our rate increases we do them in January, so that's where we expect to see the rate increases, really, fourth quarter to first quarter, and so what you see is second quarter, our rates continue to be consistent with what we've done for our rate increases in January. And so, private pay is about 5.7% higher this year over last year, and that's what we would have expected.

And then in your prepared remarks you made a comment about evaluating facilities that might not be within your long-term strategy. Just wondering how many facilities you've identified? If you have identified any yet, what states you're looking at, and kind of what's the time frame on that?

We haven't identified any buildings yet. We certainly haven't engaged any broker for sale of buildings, but we are continuing to take a look at which buildings are slower to pick up in their private pay trends, and we're also taking a look at different legislation in certain states that impacts us and whether or not we think those are challenges that we want to continue to work with, or whether those would be buildings that we may not want to keep in a portfolio going forward. So, no decision on it at this point.

Thank you. And our next question from the line of Stefan Mykytiuk with Pike Place Capital. Please go ahead.

Good morning. I'm going to ask a question that I think Frank asked before, but I'm on my third call of the day, and I'm starting to lose my mind here. So I'm sorry to repeat myself. I just want to make sure I understand. You said move-outs were getting less bad as you went through the second quarter?

Correct.

On a private pay basis?

Yes.

Correct. And then move-ins, it sounds like you said weren't really fluctuate – the trend in move-ins wasn't really either way in Q2, but in July, you're saying net-net you actually added, you increased private pay occupancy?

Correct.

All right. Hey, I got that straight. Thanks very much.

You're welcome, Stefan.

(Operator instructions) A follow-up question now from the line of Kevin Ellich with RBC Capital Markets. Please go ahead.

Yes. I was just wondering with the expansion program, you gave us the time frame, but have you been able to or can pre-sell any of those units? I can't remember if you've mentioned that in the past.

Sure. It's a bit challenging to pre-sell too far in advance, but we have started to pre-sell some of the units, Kevin, and we're certainly going to continue to try to do that. Obviously, as people come forward, some folks are in need much more quickly than when the units will be opened and ready to go. We've been working with sister properties to encourage people to go to one of our next closest buildings in the meantime. And we've got just very little success with that just because of the distance typically between the buildings, but we have started to pre-sell the upcoming units.

And then with the Dubuque facility and the CaraVita acquisition, have you seen any changes in occupancy at those facilities?

Yes. What we've seen is a continued increase at the Dubuque property and at CaraVita, we've seen some similar decreases as we've talked about with the rest of the portfolio.

And can you give us any details of what the census stands for each?

No, we probably aren't going to get into the individual buildings.

Thank you. And our next question is from the line of Adam Comora with EnTrust Capital. Please go ahead.

Yes. Hi, thanks. Just the – when you say occupancy – private pay occupancy has increased in July, are you talking about year-over-year? Are you talking about sequentially?

We're talking about sequentially from June.

And what kind of visibility do you have on the move-out as we look into the next three to six months? I know sometimes you got a three month look, or a one month look, or a six month look, do you think those trends could continue as we go through August and September?

We probably aren't going to get into what the third quarter is looking like, but basically what we've seen is a decrease in the move-out trend, and obviously, as far as the occupancy is concerned, it's going to be based on not only the move-outs but the move-ins as well.

I understand.

Sure.

Thanks.

(Operator instructions) We have no additional questions at this time. So please continue.

Thank you. Once again, a replay of this call will be available in approximately one hour until September 6, 2008. You can access the rebroadcast on our Web site at www.alcco.com.

Thank you. And ladies and gentlemen, that does conclude our conference call for today. I'd like to thank you for your participation and for using AT&T Executive Teleconference service. And you may now disconnect.