At this time, I would like to welcome everyone to the Brookdale Senior Living fourth quarter earnings conference call. (Operator Instructions) Mr. Rodman, you may begin your conference.

Good morning, everyone. I'd also like to welcome you all to the fourth quarter 2011 earnings call for Brookdale Senior Living. Joining us today are Bill Sheriff, our Chief Executive Officer; and Mark Ohlendorf, our Co-President and Chief Financial Officer. Also present is Andy Smith, our Executive Vice President and General Counsel. This call is being recorded. A replay will be available through November 24 and the details on how to access that replay are in the earnings release. This call will also be available via webcast on our website brookdaleliving.com for three months following the call. I'd 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 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 turn the call over to Bill.

Good morning and welcome to our call. The company performed well in the fourth quarter, a quarter where there was a lot going on, operating 30% more units for the fourth quarter, adjusting to changes in the Medicare components of our business, all against a backdrop that appeared to be stabilizing but certainly not producing a tailwind. On the revenue side, occupancy improved and pricing was stable. We increased sequential quarter average occupancy by 40 basis points for the consolidated portfolio. Our retirement center segment, which represents 30% of our consolidated units, increased sequential average occupancy by 50 basis points to 88.9%, its highest occupancy since the first quarter of 2008. That was also the highest average rate for that period. With over 75% of the retirement center units being independent living, we are seeing the beginnings of a rebound in independent living occupancy, which is the result of the continued upgrading of this product line and the increased supporting services in our independent living product. Our assisted living segment hit 88.7% occupancy, its high for the year. And the CCRCs occupancy remained leveled in spite of a skilled nursing census that decreased slightly in line with reduced hospital discharges. The fourth quarter was also good for the number of independent living entry fee sales. We closed on 85 sales this quarter versus 73 in the fourth quarter of 2010, producing over $13 million of gross entrance fee proceeds. We did have an abnormal spike in refunds with a higher than normal proportion of high refund contracts terminating, but still produced over $9 million of net entry fee cash flow. Looking at pricing, one has to remove the effects of the ancillary services and Medicare skilled nursing reimbursement reductions. Without RUGS-IV impact, same community growth rate was approximately 2% for…

Thanks, Bill. Our reported CFFO in the fourth quarter was $0.47 per share. Excluding $8 million of integration and transaction-related costs, our CFFO was $0.54 per share. Compared to the fourth quarter of 2010, same community revenue increased 2% with average revenue per unit up 1.7%, occupancy was up 20 basis points and expenses increased 5.8%. Breaking the same community data down further and excluding ancillary services, our senior housing revenue grew by 1.5% with revenue per unit increasing by 1.2%. Of course, the reduction in Medicare skilled nursing reimbursement rates impacted the fourth quarter results and revenue growth. Adjusting the Medicare rate reduction impact out of the calculation, senior housing revenue grew by 2.1% and the average rate grew by 1.8%. Excluding ancillary services, senior housing expenses grew by 4%. Controllable costs were largely in line with our expectations, but we had a difficult comparison against Q4 2010 where we had held expense growth to an unsustainably low 70 basis points. We experience $600,000 of added therapy cost in the quarter in our skilled nursing operations due to CMS' elimination of group therapy. Also we experienced the modest spike in non-controllable cost, primarily utilities, real estate taxes and GLPO insurance reserves. Same community senior housing facility operating income or FOI, decreased by 3% in the fourth quarter. Adjusting for the Medicare related impacts to revenue and expense, FOI would have decreased by 1%. As an aside, included in our operating expenses this quarter was a $2.4 million increase in bad debt reserves related to Medicare home health receivables, which we believe resulted from both the Medicare home health administrative procedural changes and our ongoing centralization of Medicare billing from the field, which disrupted our processes for a time. We believe the centralization process will payoff for us in the…

Thanks, Bill. Our growth rates from 2011 to 2012 are obviously impacted by changes in Medicare homecare and skilled nursing rates. They describe the underlying growth dynamics in our business. We first need to separate out the affect of the Medicare changes on our 2011 and 2012 numbers. The first impact is the 11.3% decrease in skilled nursing rates and the elimination of group therapy. Based on the fourth quarter, it looks like we were accurate in our estimate of approximately a $20 million per year reduction in revenue and a $3 million to $4 million increase in expenses. Both of these changes began in the fourth quarter. The second impact is the reduction in home health rates and case mix payments, which as we've said, we estimate to be $8 million to $9 million of annual revenue reduction. In total and recognizing that the change in Medicare skilled nursing rates is reflected for one quarter in 2011, we expect that the year-to-year impact on CFFO with these Medicare rate changes will be around $25 million to $26 million or $0.20 per share to $0.21 per share of CFFO. The vast majority of this change comes out of the 2012 revenue line. Therefore, we began with the perspective that the $2.11 per share of CFFO, we produced in 2011 becomes approximately $1.90 per share as a starting point. Our guidance for 2012 is CFFO of $2.10 to $2.20 per share which would imply a growth rate of 11% to 16% in CFFO outside of the Medicare changes. Looking at the drivers behind that growth, we start with revenue. In total, including the impact of the added Horizon Bay leased assets, we expect approximately 6% to 6.5% total revenue growth with total revenue in excess of $2.4 billion, excluding entrance fee…

We are encouraged as we started 2012. We dug out of the occupancy decline we experienced in the first half of last year and came back strong. We successfully acquired an allocated a large number of communities and added some very good people to the organization. Looking beyond 2012, we can't help to be quite optimistic. The underlying fundamentals that have helped this industry whether at the great recession, basic demographics changes in changes in morbidity and mortality driven by medical science, limited new competitive supply will only gets stronger. Yet it is the prospects internal to Brookdale but also have us excited. We have the opportunity resources and talent build beyond being the largest but to place the company in a unique position more broadly with seniors and the rest of the healthcare providers system. We have been working on a path to integrate health and wellness solutions with a broad spectrum of senior living auctions options to create optimal aging) experiences for seniors and their families. Delivering a comprehensive suite of health and wellness solutions that optimize resident and family well-being, all bring a broad spectrum of senior living options to meet the individual needs at each resident and their families. Developing an industry-leading brand and operating platform and empowering caring, compassion associates who will embody Brookdales values and culture to deliver exceptional service everyday, all are key elements of our strategy. We are on the right path, it will take innovation, hard work and good discipline. We will add to our asset base but we will also pursue innovations like integrated electronic medical records, care transition programs, joint vents bids with prestigious institutions for CMS brands and products and use technology that will allow us to reach beyond our physical assets to search seniors in the broader community. We see the opportunity to build something special that conserve seniors and their families in a meaningful way while providing great opportunity for our associates and superior financial returns for our shareholders. We will now turn the call back to the operator to begin the question-and-answer session.

(Operator Instructions) Your first question comes from the line of Ryan Daniels with William Blair & Company. Christina Blaishek - William Blair & Company: It's Christina Blaishek for Ryan today. A quick question on the first quarter, any big impact from the leap year, I think most cost are daily but rates are monthly at least outside of skilled nursing days, will that have any impact on CFFO or is it largely irrelevant to the outlook?

It actually does have some effect. There is one more day in the quarter, so the variable cost would be up by 190 to 191, if you compare it to prior year. It's not a huge effect but there is some impact. Christina Blaishek - William Blair & Company: And then moving on, with the continued momentum of ACOs and shared saving models, I'm curious if you're seeing any incremental traction with hospitals to become a more value to preferred partner for posted acute care services in your skilled nursing facility?

We have very active dialogue and explorations and also several initiatives and pilots going on with different hospital systems. They are reaching out to us as we reach out to them and are getting traction, and people continue to focus on that. Christina Blaishek - William Blair & Company: And then one final one, if I may. One of the things that you talked about I believe is that while the 80-plus or 85-plus population is not exactly growing at a different rate. So the population is more wealthy one than it has been in any years past, plus maybe increasing the absorption rate in the industry. I'm curious if you're actually seeing signs of the starting to happen that, where growth rates are high?

Well, it's hard to get into exact measurements to that all of what's going on in the backdrop of the economic environment. But I certainly, I believe it is a factor, as to why we're seeing the improvement we're seeing. But again, we're on the very early years of serving that silent generation, people from 1925, 1945 births. And so that will maybe pick up more as we go through each of the next couple of years.

Your next question comes from the line of Kevin Fischbeck with Bank of America Merrill Lynch.

This is actually Josh Marans in for Kevin. Just wanted to come back to the outlook for same-store community results for senior housing, excluding the ancillary services and the changes in SNP reimbursement and group therapy. So you have a very helpful metric in the press release on that number that senior housing facility operating income excess items was down about 1% in the fourth quarter. So I was just wondering, if you could give us the equivalent number for 2012, I think within your guidance?

Let me be sure, I understand your question. The impact on rate growth of the change in RUG rates, is that your question?

No, the question is on same-store senior housing facility operating income growth, excluding ancillary services and excluding the cuts on the SNP and the group therapy changes. So I think the equivalent metric that you gave in the press release was that it down 1% in the fourth quarter?

Right.

So just wondering what that number is for 2012?

Well, actually the guidance number we provided are more aggregate type numbers, but the dollar impact year-to-year, again the impact of the RUG rates came through in the fourth quarter of 2011. Adjusting for that the year-to-year impact is $25 million to $26 million. The lion's share of that is in the same-store portfolio.

So I guess, maybe to come out in a different way, it sounds like the same-store senior housing pricing growth is for 2% to 2.5%. And I think you said that includes a 1% negative drag from the SNP. I think the number in the fourth quarter was up 2.1%, so is ex the SNP reimbursement cut, so is the implication that the plus 2.1% in the fourth quarter is going to go up to 3% to 3.5%?

As we go through the year. Now, some of these numbers are impacted a bit, by the change in mix of our business overtime. But that is correct.

And then, one last one. Just coming back to the components of underlying free cash flow, and I think you touched on some of the buckets, I'm sorry if I miss them. But just want to get a sense for underlying deployable free cash flow in 2012 it's not included in the guidance. So I guess about $260 million of CFFO for 2012? And then I think you had mentioned about $35 million of corporate CapEx? And then if you could just give EBITDA enhancing cash and development cash in separate buckets that will be helpful?

So the CFFO guidance is already inclusive of $35 million to $40 million of routine CapEx. Beyond that we are forecasting $100 million to $105 million of major project CapEx, which does not include Program Max and about $60 million related to Program Max. So it's roughly $160 million to $165 million between major projects, corporate CapEx and Program Max of that CFFO number that you described.

And then how much is available on the revolver at this point after you did those non-community acquisitions recently?

Well, those were financed. So at the end of the quarter, we were about $160 million of cash in available line capacity. I mean, we're not going to quote a number for you on our line balance in the middle of a quarter. But as we go forward here we're obviously generating cash flow, using some of the equity in that case to reacquire some asset. So there was some investment in that transaction, but it's not an enormous number.

Some investment that use the revolver to fund?

I mean, cash is fungible, right. But obviously at that moment in time, we didn't have the cash, we used the revolver.

Your next question comes from the line of Bryan Sekino with Barclays Capital.

Just a follow-up on the comments on the acquisitions you're seeing. Are you seeing kind of similar management type deals like an overlay like Horizon Bay, where you have the ancillary roll-out opportunity? And then are you also seeing acquisitions with a real estate component as well?

There is a full mix and certainly we look at things that fit us well, and part of that fit is where we have our licensors in place or where it would give us more critical mass in the market that would make sense to pursue licensor. So there is a fair mix of different situations and the opportunities.

And then on the HCP call they talked about some new development opportunity with you guys. I wanted to know if you could provide some details on those projects and may be some excepted completion times and impacts?

There is some obvious confusion that I guess came out of our interpretation of what was apparently said. But we are not the developer of those projects, those are projects being developed by a party, an experienced party, that that HCP had underwritten looked that light and committed to the financing. They ask us to provide the management for those in the management services and we have a good relationship there. And given what might be the future optionality, no factors. We were pleased to agree to provide those services. The first of those will open here in the second quarter. And those I think are just not beginning to get started, so you got anywhere from a 15 month to 18 month period for some of balance of that.

Your next question comes from the line of Sloan Bohlen with Goldman Sachs.

Several question on the CapEx. For the $60 million of equity investments and I think, Mark, you had mentioned that a little less of it is for expansion this year. Can you maybe talk a little bit more about, what are the components that are going to make up that 15% return? Is it in higher rents or higher rates that you guys can now realize after that CapEx spend? And then second to that is there any income lost over the period that you're renovating those older assets?

The return is generally a combination of increase great growth and improved occupancy, although, the other factor in some of these repositionings is that units are essentially converted to higher revenue units. So independent living units converted to assisted or memory care for example, so both of those tend to drive all three of those, I guess, It tend to drive the revenue numbers up a little bit. On occasion, when the repositionings are done, units come out of service. I wouldn't say that's common.

At quite a few places, we have capacity that comes out. We don't reduce our capacity and that obviously affects a little bit of our occupancy reporting. And actually though we experienced as that activity goes on, had often increasing the attraction and interest and even there in the construction period. And we are able to hold and not have too much of a loss. So all of that's baked into our numbers.

And the 15% return, you've quoted a similar type of return number. This is maybe more towards expanding into some of the ancillary services. But given the rate cuts and I think you talked about this at your Investor Day a little bit. But can you maybe talk about what the rate cuts both for skilled nursing and the home health was done to what your return expectations are on that income producing CapEx?

Those returns that we're reflecting and talking about and experiencing and demonstrating and doing, we are not pulling into the ancillary service income elements as part of that. On the skilled nursing component, there are some of these expansions from repositioning of those get into reconfiguring skilled nursing, and sometimes in expansions adding that skilled nursing. And that does in terms of those may drop the expected returns by 1% to 2% based on the outlook and reduced rates. But those have been well above the 15% and those reductions will still leave it above that level in terms of the historic experienced we've had on that type of asset.

And then maybe, Bill, if you could, maybe just provide an update as to prospectively what the different scenarios are for future rate cuts and what's being discussed today?

It's a little bit of uncertain. There is activity on the hill, but I am not sure what will necessarily come out of that. I think right now in terms of what might happen in the fourth quarter, which is the usual plan period for adjustment in the skilled nursing rates. The general view right now is at least that we what hear is most likely not much of a change, though there is still uncertainty to it. We do anticipate that our decent minor reductions in home health, next year into 2013. At least we need to make sure we're thinking and preparing ourselves for that. But that is also uncertain at this point.

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

I want to ask a few extra questions on the Program Max. Are you accelerating Program Max from redevelopment versus expansion because of competitive pressures or other facilities in your geographies doing these redevelopments as well or is there another reason why you're accelerating the redevelopments in particular, are you accelerating it because you're see an average entrance age it's going up and you need to have higher acuity units in your facilities versus what you have before with IL?

The real view and perspective in maintenance has not changed in the basis of as we have plan articulate over several years. The acceleration is coming from solving some of the constrained issues that we have of restructure, terms elements or financing elements or other approval processes. It's been a little bit frustrating in terms of some of those constraints and getting through some of those as fast as we had anticipated and we're now beginning to get through that and start lengthening our stride. I think it is essential that we continue to put in our absolute maximum competitive position in each of our assets and there is just a lot of opportunity in that. Yes, there are other folks within our field, and I think the ones that are more experienced in the basis have quite well know that there is significant returning opportunity in reinvesting in their assets but the acceleration we refer to is been able to take on and execute them on a more consistent pace, that which we have laid out here for a couple of years.

I'd take it that you would want to do some lease buyouts so that you can control the assets?

It's a complex issue and it's a challenge within the asset, the lease terms, the timing of it, everything else. And besides we're working with our elite REIT partners and we appreciate the working comp and cooperation that they're giving us. It is little bit more complicated that may have been first appreciated. And we're making good progress. So there maybe an occasions where it does result in that but in any other occasions the REITs are very willing to not to fund it. It's the issues, what are the terms and the longer term economic affects of that. We continue to work to get alignment on that. And we appreciate the cooperation, we're getting on that.

And then turning to your acquisition side, I mean, what are you seeing in terms of your pipeline? You're seeing a lot of one-off acquisitions, or are we seeing any larger portfolios, $50 million, $100 million, $200 million that are going to available to you in 2012? And maybe also is there any kind of leaning towards IL or AL or even perhaps CCRCs that you see as an opportunity?

It covers the whole spectrum, everything you touched on is we are seeing elements of it.

And then on rate growth, what level of occupancy or what kind of environment did you see growth rate accelerating further. Do you need to hit 90% occupancy or you really start get to 4% or 5% rate growth that you have done in the past?

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One more quick question on in terms of your occupancy unit, you did really well in independent living and entrance fee this quarter. Are you seeing any pickup in particular geography and say in particular at Florida, where you had a lot of housing issues probably impacting some of your facilities there. So in the coastal markets, are you seeing a pickup in your independent living and entrance fee property or occupancy as well?

We are seeing a little bit. And certainly the coastal markets, as far as California and Florida have been certainly the more challenging, and we are encouraged.

Your next question comes from the line of Rob Mains with Morgan Keegan.

Just couple of quick questions, first of all, we've talked about the Medicare, it's that you're absorbing. In the past, you talked about how you don't really have all the levers at your disposal that a dedicated nursing home, freestanding nursing home operator, would in terms of cost offsets. Do I summarize from what you're saying on the RUGS cuts that you're not expecting a lot in the way of cost offsets at the topline jobs to the pre-tax line or that in your case the kind of the net line.

The short answer is yes. We are seeking to improve some of the productivity activities around skilled nursing in our business, but in general we are not separately forecasting responses related to those rate changes as others maybe doing. It's less than 10% of the revenue in our business. So it's a different dynamic.

And then, Mark, I get kind of a hair-splitting question on what you've said about what you're expecting for occupancy? This year you added a lot of residence obviously in the second half of the year such that the fourth quarter occupancy level is well above where the full-year is. When you're saying that 100 basis points of occupancy would that be that the full-year occupancy for 2012, would be 88.3 or that by the end of 2012, you be at 88.8?

It's I think the former. It's the full-year average over the full-year average.

At this time, there are no further questions.

With that everyone, I thank you for your participation. Management will be here today for any follow-up questions. Just give us a call. Thanks. We'd appreciate it.

This concludes today conference call. You may now disconnect.