Good morning. My name is John, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Brookdale Senior Living Third Quarter Earnings Call. [Operator Instructions] Ross Roadman, Senior Vice President of Investor Relations, you may begin your conference.

Thank you, John, and good morning, everyone. I'd like to welcome you all to the Third Quarter 2014 Earnings Call for Brookdale Senior Living. Joining us today are Andy Smith, our Chief Executive Officer; and Mark Ohlendorf, our President and Chief Financial Officer. I'd 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 Andy Smith. Andy?

Good morning, and thank you for being with us this morning. I would like to begin by providing an update on the Emeritus acquisition and our significant progress to date integrating our 2 companies. I'll then turn the call over to Mark to discuss our financial results in detail. The third quarter was a period of both extraordinary activity and accomplishment. First and foremost, we completed 2 large, complexed transactions on time and as expected. On July 31, we closed our transformative merger with Emeritus, expanding our unit capacity by more than 2/3 to approximately 111,000 units in 1,147 communities across 46 states. One month later, on August 29, we closed our transactions with HCP as expected. We are focused on executing our integration plans to drive efficiencies and cohesiveness across our organization, an integration of this scale evidently introduces a degree of complexity, and to virtually every element of our business in the short-term. However, we are happy with our progress today. The process of integrating the Emeritus platform has 3 main components: First, operational realignment; second, systems and infrastructure integration; and finally, people and culture. I'd like to give you a brief update on each of these. First, our operational realignment. On the day the Emeritus merger closed, we created a combined operational structure for our senior housing business with 6 large operating divisions, 4 geographically-based divisions, a rental CCRC division and an entrance fee division. To give you a sense of the scale of these divisions, 4 of them, if standing alone, would be one of the 10 largest senior housing operators in the United States. As part of the operations realignment, 500 field management associates from both of the legacy companies took on new responsibilities and new reporting relationships. Second, systems and infrastructure. This involves the…

Thanks, Andy. In the third quarter, Brookdale produced $0.63 per share of CFFO, excluding integration, transaction-related and EMR expenses of $77 million. This compares to $0.61 a share in the third quarter of 2013 and $0.71 a share in the second quarter of 2014. Our third quarter results demonstrate solid performance despite the highly strategic transactions we completed during the quarter. First, we closed the Emeritus merger on July 31. The third quarter earnings impact of consolidating Emeritus is lower CFFO per diluted share was somewhat offset by the positive net impact of conforming Emeritus' accounting practices to ours. Second, we closed the various HCP transactions on August 29. Since our entry fee sales tend to be backloaded in the quarter, the timing of the closing of the entry fee joint venture with HCP cost us a couple of cents to CFFO. And third, we completed our secondary equity offering in September to reduce our existing leverage, exercised select purchase options on leased assets and provide capital to take advantage of the opportunities created by both the Emeritus merger and the HCP transactions. The timing of the equity offering was dilutive to our CFO -- CFFO by $0.01, given the limited time to deploy cash in the quarter. In the third quarter, our consolidated average occupancy increased sequentially by 40 basis points over the second quarter of 2014 to 88.5%. For the Retirement Centers segment, the total sequential change was a 90 basis point increase, resulting from 3 factors: A 40 basis point increase in the legacy Brookdale portfolio, no change in the legacy Emeritus portfolio and the inclusion of the legacy Emeritus communities at an average occupancy of more than 92%, which was higher than the legacy Brookdale level. For the Assisted Living segment, the total sequential change was…

[Operator Instructions] Your first question comes from the line of Darren Lehrich from Deutsche Bank.

I guess I wanted to just ask a few things in the first -- with just be the September annualized EBITDA numbers that you're providing. And I guess, it looks like it's a really good starting point, just annualizing that month. I wanted to know if we should be thinking about any seasonal elements that were just unusual to the month as we sort of roll this forward?

Yes. The third quarter pro forma number is actually the months of July, August and September for the various pieces of the portfolio. So it represents the full quarter. I think you can see for the various pieces what the assumptions are or what the reported numbers are in the segments for occupancy and rate, but it represents the full third quarter.

Great. Okay, that's good. And then I guess, the question just around unit growth and expansions on the existing base. I know you're still working through your capital expenditure plan, but is there kind of a baseline assumption that we ought to be using in terms of new units in the existing portfolio x any M&A that you do?

We'll provide you our sense of what's going to happen with Program Max expansions year-to-year as we do the guidance. Now in 2014, we are seeing a fair amount of activity. We've already completed 7 projects and expect another dozen to 15 to be completed in 2014. So this year, well, net additions of 300 or 400 units. We're certainly ambitious to maintain that kind of growth level over time, but we'll need to see how the final plans with the Emeritus portfolio play out.

Okay, that's helpful. And then I guess, just the timing on the purchase options and what kind of impact that's going to have on lease expense, just as you redeploy the capital. It would be helpful just to get a picture for that.

Darren, its Andy. We've -- as we announced when we did the equity offering, we've got about $60 million worth of purchase options, which we would expect to exercise at the beginning of the year. And then the balance of the purchase options that we have, we don't have too terribly many additional purchase options in 2015 that we would be in a place to exercise the majority of them. I think we've outlined previously or after 2015.

Okay, great. And then last thing here for me. Just on the CCRC joint venture, you did that deal with an eye towards growth and consolidation. I guess the question is, how quickly do you think you'll be executing on consolidation in the CCRC space with that new venture?

Right. That's clearly one of the reasons that we did that. And we, in HCP, are both, I think, excited about the opportunities to make investments in this space because the yields are higher than we would've expect in another segments of senior's housing. But it's hard to tell. Predicting acquisitions, there are always lumpy. These are big deals, each one of them is going to be a large transaction. So it's lumpy and it will be difficult for me to predict with any level of certainty when we think we could accomplish those acquisitions, although we are looking.

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

This is Nick Hiller in for Ryan Daniels. On the same community front, operating expense growth for the legacy Brookdale communities was pretty much in line with revenue growth. Is that just a function of kind of mean reversion after several quarters of solid expense control? Or did the integration just consumed our attention, which resulted in less time to focus on managing OpEx at facility level?

No. I think on the legacy Brookdale level, the cost growth number of 2.5% or so is, I mean that's roughly what you see in terms of economic inflation today. So I think that's a pretty regular run rate number.

Okay. And then with the rebranding, are you able to leverage the -- your marketing initiatives to fill Emeritus' assets, yet? Or do you really need to reflag those facilities before you can start pushing leads into them?

Well, as Mark said -- this is Andy, Nick. As Mark said in his prepared remarks, we are investing heavily to as rapidly as we possibly can to reflag all of the Emeritus buildings. That having been said, yes, there is -- there are cross marketing opportunities even before we get those communities rebranded or reflag, if you will, and we're working on that, as we speak, every day. Now the reflagging will obviously accelerate and will enhance that opportunity. That's going to be like having thousands and thousands of Brookdale billboards across the country. But our local marketing teams and our local marketing sales folks are, right now, trying to collaborate and work together to jointly market their communities and to better segment those local markets.

Okay. And I just have 1 last one. I mean, I don't know if you've given much thought to this yet, but just curious if you had any thoughts on some of the potential revenue synergies you can eventually capture, like capturing some of the health care spending inside your overall facility base.

Well, as you know, we see a huge opportunity to capture that revenue or a piece of that revenue, lots of other revenue synergies that we're exploring, we're thinking about and we're working on. But there's nothing that we would add to what we have previously disclosed about our revenue synergies at this point. Again, we would expect to have a fairly detailed overview of our business plan for 2015 when we announce our fourth quarter results.

Your next question comes from the line of Joanna Gajuk from Bank of America Merrill Lynch.

Just to follow-up on the comment you made. You already identified, I guess, a couple of projects you want to do on the legacy Emeritus assets. So have you already started? Or you're still sort of combining the list of things and wish we expect to see some sort of beginning of these projects taking shape?

Right. Joanna, its Andy. The -- there are couple of different components to that. As you know, one of the investment thesis behind this merger was that we see a real opportunity to improve revenue performance in the Emeritus communities by investing capital into those communities, which mirrors the strategy that Brookdale adopted 3, 4 years ago and which we're continuing to pursue, but have seen good results from. So just in terms of CapEx investment into their existing communities in terms of refurbishing, getting them up to current market standards, that type of thing, we already have a number of projects that we are accelerating and moving forward within the Emeritus portfolio. With respect to Program Max, those projects are a little more complicated, a little more complex. We have identified a number of opportunities around Program Max projects in the Emeritus communities, but the planning for that and coordinating that with our current Program Max pipeline of projects, that coordination and that ongoing planning is taking place as we speak.

All right. So what do you expect -- so you're saying that you already started them refurbishing at legacy Emeritus assets? Or do you expect the -- okay. And then so with Program Max, do you -- would you expect any sort of disruption that you would have to take some units out from the market when you start doing that?

Sometimes we'll have to, and we have this right now in the existing Brookdale portfolio. We may have to take some units off line to reposition them. Now I don't expect that to be a huge number of units as we sit here today for 2015, but there could be a little bit of that.

But do you have a view of how many sort of these type of Program Max projects you would do at the same time? I know -- I guess, you've done it for a couple of years now, so you have a good sense of how much you could do at a time without sort of disrupting the entire portfolio. So do you have any view of that? Like how aggressive you're going to be? That's my question pretty much in terms of doing this project.

Well, we're going to be as aggressive as we can be in, first, deploying capital into the existing Emeritus portfolio and the refurbs and the renovations that we just -- that I just talked about. On Program Max, were going to be as aggressive on Program Max, as we can be and are actually adding to our teams, so that we can process and prosecute more projects than we could with just the legacy Brookdale portfolio. But I can't -- as I sit here today, I can't give you any detailed forecast on what exactly what that's going to look like.

All right. And then I guess, lastly, on the comment around the guidance being reaffirmed. So are you saying that you assumed that the rate -- the remaining asset proceeds because, as you outlined, you will repurchase some leases, you will going to find some deal and pay down some debt, but there's still over $100 million left, so you're saying that you already have plans for that and that sort of going to offset the potential dilution from the offering. Is that how we should think about that?

I think that's right, Joanna. The guidance range we provided was a $0.15 range and, again, the equity offering was roughly 5% of the outstanding shares of Brookdale on the primary deal. So I think by almost any way you do the math, the potential amount of dilution, which we frankly think is fairly limited, is less than what the guidance range is.

All right. And just 1 follow-up. So on the occupancy -- the legacy Brookdale assets being somewhat disrupted by the transaction. So can you just explain exactly like why? I mean, you would expect that legacy Emeritus assets, there's going to be a lot of disruption, but why would legacy Brookdale assets be affected? Is it just because, I guess, people are waiting to see how it's going to turn out for them? Or any additional color you can give, that would be helpful. That's the last question from me.

Yes. As I indicated in my prepared remarks, we had our field management, 500 of those folks were assigned to new communities or new reporting relationships. We also have -- there's just a lot of change management that's going on both in the legacy Emeritus platform, but just as much in the legacy Brookdale platform. Whole bunch of new reporting relationships, folks being having to work off 2 different sales platforms, 2 different sales systems, lots and lots of changed management that's going on. And therefore, lots and lots of disruption. As I indicated in my prepared remarks, we saw our legacy Brookdale conversion. We -- again, I would underscore, we still build occupancy in this quarter. But we saw a drop in our conversion rates in August, and our sales folks didn't forget how to sell on July 31. They just happen to have different -- they're working off different reporting structures with new people. And we think that disruption held us back a little bit in terms of the occupancy growth we would have seen, we believe, had we remained a standalone company.

You next question comes from the line of Josh Raskin of Barclays.

Just actually want to follow-up on that last point that, Andy that you made around the conversion rates being lower. So I understand obviously, there's a lot of new reporting lines and a lot of integration that goes on. But you get the lead, and then you have the individual that's interested and then the conversion rate goes down. I guess, what changed on the legacy Brookdale process? I guess, once that leads been generated, that conversion rate that comes down. What in that process specifically changed?

Well, the -- again, we have sales folks in our communities who are their bosses. Their managers are diverted towards operating new Emeritus communities on a new -- well, not new to Emeritus, but new to Brookdale and Emeritus sales program. So their managers are distracted and there's just a disruption from that, as they are focused on trying to integrate and coordinate activities in the Emeritus communities. So again, we think that caused an incremental loss of move-in velocity, which, again, we expect this disruption tunnel to last for a while or to be a tailwind for the next couple of quarters. But folks are working through that, things are incrementally improving and, again, we just think its part of the disruption. I will say one thing, too. It's probably important to mention. We had a very strong Q3 of 2013. It was a tough comp for us. I think during that period of time, we were up 100 basis points in occupancy and our rate was 2.8-or-so percent, so we had a tough comp, too.

Got you, got you. So is it -- potentially, is this a timing issue that these individuals just taken time to get management's attention to get a sign-off, et cetera, and they come back over time? Or is this just you don't -- we don't have the capacity to do everything today, and that we need to get everything sort of settled down from an integration perspective before we get back to normal conversion rates?

Well, I guess I would say it's the timing issue in the sense that we expect things to smooth out as we sort of come out of this disruptive integration process. We would expect that those reporting relationships, people getting under 1 system, all of that we would expect to smooth out as we move forward.

And I know you mentioned the tough comp, I think it gets a little easier in the fourth quarter. Would you expect that year-over-year change to improve in the fourth quarter?

I don't -- I'm not sure we are in a position to predict precisely what Q4 looks like. I will say this, again, we would expect that we would return to -- over time, we would expect that we would return to in the legacy Brookdale portfolio to more normalized NOI growth than what we saw this quarter.

Okay got you. And then just second topic, I think, Mark, you mentioned that there was some difference in accounting practices that offset some of the CFFO in the quarter. So I was just curious what are the -- what were the differences in the Emeritus accounting? And does that actually have an impact on the accretion, dilution at that part of your accretion, dilution targets?

Yes. It is part of the math we do. I think you see this most clearly, if you look at the same-store results on Page 6 of the supplement and look at the separate legacy Emeritus same-store data, there you see operating expenses in this same-store portfolio down 1.8%. Excluding the impact of the accounting conformity, that number is actually positive 1.4%. So there's an impact here of a few million dollars in the quarter. There are not significant differences in accounting between Brookdale and Emeritus. There are subtle differences. I think one example that I would point out, Emeritus expense the cost of unit turnovers. So when a resident moves out of a unit, new resident moves in, typically repaint the unit, put down a new carpet and make it ready for the new resident there, but Emeritus expense that cost as maintenance cost. On the Brookdale side, we actually capitalize that cost as CapEx, and it comes through our CFFO as a recurring routine CapEx, right? We both -- in both cases, it's a cost in quotes in the CFFO math, it just shows up in a different bucket. So that -- if you just look at the NOI results, which don't show the CapEx, it destroys the number a little bit.

Okay. So it's basically, they expense more and you guys capitalize more and that was sort of the difference in accounting that you're talking about?

Yes. There are other differences, but I think that's the one that I would point out.

Okay. And then the last question, just since the Emeritus deal is closed, obviously, largest transaction in the history -- in your history et cetera, and just closed a couple of months ago. But I'm just curious what sort of reception you've gotten from an M&A perspective in terms of the pipeline? Are you seeing different types of deals brought to you now in terms of size? Or does the market sort of perceive the combined entity as relatively busy with obviously the big acquisition? Or are you seeing less shown to you because of that? I'm just curious what the pipeline looks like.

Well, Josh, what we've said before is, our main mission here is to keep our eye on the ball of making sure we execute against our plans with respect to the Emeritus merger. So with respect to ordinary course transaction, we're seeing a deal flow that, at least I would say, is ordinary course kind of what we've seen for the past year or so. That having been said, it's going to have to be -- with respect to core senior housing assets, it's going to have to be a very attractive opportunity for us to pursue it right now because we don't want to lose focus on executing against our plans with Emeritus. A couple of exceptions to that. Obviously, if we can acquire assets that we currently operate, either because we manage them or because we lease them, then there is no integration risk in that and we would -- we are pursuing that type of opportunity. In addition to that, the part of our business that is least affected by the Emeritus integration is our entrance fee platform which, as you know, one of the key components of that is that we see acquisition opportunities in the entrance fee space, and we're looking at and pursuing those, as I mentioned earlier in this call.

Your next question comes from the line of Brian Zimmerman with Goldman Sachs.

I was hoping I could just get 1 follow-up on the conversion rate discussion. Have you been able to quantify what the occupancy rates may look like without this disruption?

Well, there hadn't been any disruption, if that's what you said.

No. I guess what I'm saying is, you said that occupancy rates were impacted by lower conversion rates. So I just -- I guess what I was thinking is if you look at the Brookdale Legacy Portfolio, what might that occupancy rate look like without this lower conversion rate, if you see more of a normalized?

Yes. I can't predict, Brian, the counterfactual for what happened other than to reaffirm that had -- we think our rate would have grown higher than the 40 basis points that it did, in fact, grow. Had we -- had the merger not close during this period of time. But I can't make a precise prediction for you on what[indiscernible].

Okay, fair enough. And then you commented on monthly trends in the quarter, what have you seen? I know it's early in the fourth quarter, but have you seen sort of the leveling off in September persistent into October?

Yes. We -- again, as I said, we feel -- good about where we are with respect to our integration process, and we are confident in our game plan moving forward. There are a couple of quarters here where we've got continuation of rolling out the third and the fourth waves of our integration process all according to plan. Everything is according to expectations. But to answer your question, specifically, the September firming up, leveling out, if you will, is continuing in October, and we would expect that to continue through the balance of the quarter.

Okay. And then my final question is, you mentioned in your prepared remarks that you've accelerated some of your system cutovers and your system infrastructure. You expect this to be completed sort of mid-2015, a bit earlier than expected. Should we imply that, that means that some of the synergies you are expecting maybe later in 2015, maybe early 2016 could be pushed up a few quarters?

I mean on the margin, there may be some acceleration but I would not expect it would be very dramatic. Some -- a fair amount of the synergy that is projected here relates to combining the Emeritus portfolio on the Brookdale platform using the Brookdale processes over time. So there may be some modest acceleration, but I would not expect it to be very significant.

Your next question comes from the line of Brian Tanquilut from Jefferies.

This is Jason Plagman on for Brian. A question, if you could provide some color on just your expectations for the pace of the rollout of the ancillary services into the Emeritus portfolio? And then also, same question for the Home Health out into the community, kind of how quickly are you planning on moving on those 2 projects?

Well, when we communicated around the merger earlier this year, I think we expressed roughly a 2-year rollout on the ancillary service business or -- into the Emeritus communities now. This is the Inside The Walls program. I think, clearly, the rollout plan at this point is more rapid than that. Now even with the rollout occurring more quickly, it does take a while for that business to mature in season once the footprint is extended. But I think a large portion of that rollout will be completed as we go through 2015. To be honest with you, that group is very focused on the rollout in the Emeritus communities. They're beginning to prioritize the market opportunities for the Outside The Wall program, but that planning is not quite as far along.

So you're -- you'll be doing some kind of pilots on the Outside The Walls? Or how should we think about when that might start to pick up?

Well, the Nurse On Call business, which again emeritus acquired now a couple of years ago, is the largest community Home Care operator in the state of Florida. So we are, this minute, very active in the Outside The Walls home care business, particularly in the state of Florida. That business model will be replicated in other markets. Now that is the Medicare version of Home Care. We have had, on the Brookdale side, a number of experiments underway for the last 12 to 18 months on the Private Pay home care business. Obviously, both of those products rollout, to some extent, in tandem and, to some extent, separately.

Your next question comes from line of Daniel Bernstein from Stifel. Daniel M. Bernstein - Stifel, Nicolaus & Company, Incorporated, Research Division: I wanted to see if you could give -- provide a little bit more color on the purchase options, so it doesn't sound like there's a whole lot that can be emphasized in '15, but maybe if you can quantify what might be out there for '16 and '17.

If you look at the data and the supplement, Dan, we have created a basket of sort of NOI that we're reporting. That is all of the properties where we have purchase options related to the leases. This includes what we would've previously referred to as bargain purchase options as well as fair market value purchase options. Beyond what Andy referred to previously where we have roughly $60 million worth of leased assets, where we will exercise those options early next year, there's really not a lot for the next couple of fiscal years. Daniel M. Bernstein - Stifel, Nicolaus & Company, Incorporated, Research Division: Okay. And then in -- would it be right to characterize the rollout? The integration is more of a 2-year process now rather than 3 that you originally described. I mean, just based on the acceleration on what you've talked about on the call here.

Well, again, I guess think of the integration in 2 big phases. One, is rolling out the Brookdale systems, integrating the organization and so forth, as Andy described. Then over some period of time, you expect results to improve by virtue of those tools that you put in place in the organization that you've deployed. We originally thought it would be 6 to 8 quarters to complete that first set of work. We now think it's less than a year. Daniel M. Bernstein - Stifel, Nicolaus & Company, Incorporated, Research Division: Okay. And then the benefits that may take a little bit -- full benefits of that may take into that second year, but it just doesn't sound like a 3-year process at this point anymore. I think that's really that's all I have at this point, I'll hop off.

Your next question comes from line of Dana Hambly of Stephens.

Just to go back one more time to the same-store Brookdale portfolio. I assume to combat the sluggishness in the occupancy that you'll be using rate for the next couple of quarters going forward. Is that accurate? Or am I wildly off the mark there?

Well, Dana, thanks for the question. You're right, we had very strong rate performance in our -- the legacy Brookdale portfolio with 4.3%, if you look at Independent, Assisted and Memory Care. If you include Skilled Nursing, it was 3.4%. And as you know, over the past several years, we've been working hard to try to work on the rate side of the revenue equation. There are lots of subtleties to think about when we're combining and how we're thinking about marketing and selling our legacy Brookdale portfolio juxtaposed against the Emeritus portfolio. So I wouldn't -- we did not implement in the legacy Brookdale portfolio in Q3 any real stimulative pricing programs. But that's all part of a broader plan to make sure that we maximize our local market opportunities where we've got concentration and where we have more assets than we have previously managed. So I'm not in a place to give you any -- I'm not in the place to give you any real foreshadowing into what our discounting programs might be in Q4 other than to say, it is a complex equation when you take into account the size of the portfolio and what our long-term game plan is.

Okay. No, that's fair. I'm sorry, go ahead. On the -- Mark, the CFFO for the quarter, you gave a lot of details and appreciate on the pro forma, not only for the different segments, for lease expense and stuff like that. So I was trying to back into what CFFO for the quarter would have been on a pro forma basis, and I was getting to around $0.63, is that in line with what you reported? Does that sound about right? Or am I a few pennies too high or too low?

Well, I think based on what we walked through on the call, we reported $0.63. There is some pickup relating to the accounting conformity probably $0.02 or $0.03. There is some dilution in the quarter related to the timing of the closing of some transactions. Again, probably $0.02 or $0.03, so I think I would agree with what you just said.

Okay. And just remind me on the seasonality fourth quarter tends to be at the bottom line, a little stronger than the third quarter?

All else equal, that would be the case. Not as growth via quarter from an occupancy standpoint, but expenses would tend to moderate a little bit.

All right, very helpful. And lastly, Andy, in your prepared remarks, you mentioned market rationalization, is it -- could -- if that's not selling assets, could you just explain a little more detail what that is?

Yes. The -- first on in terms of disposing assets, obviously, the thesis behind this whole merger was not to have a wholesale program of disposing of assets. That having been said, Brookdale has historically disposed a handful of assets every year, Emeritus has disposed of -- had a little bit more -- a little bit, greater attention on doing dispositions. So we might dispose of assets over time, which just don't fit into our platform, but that's not -- that's really not what I was referring to. What I was referring to is our opportunity to better segment and better position our assets where we have geographic concentration, in particular markets to, say, address multiple price points to not compete with one another, to state the most obvious. So it's better management by local markets to capture more of the folks that are in those local markets at the most optimized price points that we can get to.

At this time, there are no further questions. I turn the call back over to Mr. Roadman.

Thank you, John. With that, I want to thank you all for your participation. Management will be around today for follow-up questions if you have it. As you could tell, we're excited about the integration and the ultimate outcome of the merger, and we look forward to reporting back to you in February. With that, thanks very much.

This concludes today's conference call. You may now disconnect.