Lawrence Cohen - Vice Chairman and Chief Executive Officer Carey Hendrickson - Chief Financial Officer and Senior Vice President.

Dana Nentin - Deutsche Bank Joanna Gajuk - Bank of America Merrill Lynch Daniel Bernstein - Stifel Ryan Halsted - Wells Fargo Todd Cohen - MTC Advisors Dana Hambly - Stephens Tyler Pearson - Stephens Inc..

Good day and welcome to the Capital Senior Living Fourth Quarter and Full Year 2014 Earnings Conference Call. Today's conference is being recorded.

The forward-looking statements in this release are subject to certain risks and uncertainties that could cause results to differ materially, including, but not without limitation to, the company's ability to find suitable acquisition properties at favorable terms, financing, licensing, business conditions, risk of downturns and economic conditions generally, satisfaction of closing conditions such as those pertaining to licensure, availability of insurance at commercially reasonable rates and changes in accounting principles and interpretations among others and other risks and factors identified from time to time in our reports filed with the Securities and Exchange Commission.

At this time, I would like to turn the call over to Mr. Larry Cohen. Please go ahead..

Thank you. Good afternoon and welcome to Capital Senior Living fourth quarter and full year 2014 earnings release conference call. Our fourth quarter results reflect the continuing momentum in our operations.

Our revenue increased at the highest rate of the year in the fourth quarter while our expenses declined, resulting in excellent growth in Adjusted EBITDAR and Adjusted CFFO. We also experienced solid increases in occupancy and average monthly rent.

Our same-community occupancy increased for the fifth consecutive quarter, gaining 20 basis points sequentially from the third quarter of 2014 to the fourth quarter of 2014.

Our same-community average monthly rent increased by 30 basis points in the fourth quarter of 2014 as compared to the third quarter, building on the 70 basis point sequential increases in average monthly rent in the two previous quarters.

We completed the acquisition of two senior living communities, one in mid-December and the other in mid-January, for a combined purchase price of approximately $32.8 million. The communities are expected to add incremental annual CFFO of $0.04 per share.

For the full year 2014, we acquired eight communities for a combined purchase price of $160.2 million. These acquisitions are expected to generate a 16.5% cash on cash return on equity with first year EBITDAR of $15 million and first year CFFO of $.23 per share.

We are conducting due diligence on additional acquisitions of high-quality senior living communities in states with extensive operations totaling approximately $57 million.

Subject to completion of due diligence and customary closing conditions, at least one acquisition valued at approximately $30 million is expected to close by the end of the first quarter with the remainder expected to close in the first through second quarter of 2015.

I am happy to announce that we executed an early rate lock agreement on approximately $21 million of debt associated with the $30 million acquisition at a fixed interest rate of 3.55% with a 10-year maturity.

Our improved fourth quarter results reflect the successful implementation of various initiatives during the second half of 2014, including selected introductory specials at lower occupied communities, increasing rates at higher occupied communities, increasing level of care charges and disciplined expense management.

Longer-term, we are innovating and refurbishing communities and converting units to higher levels of care to gain occupancy, reduce attrition and increase rates. We also implemented numerous sales and marketing initiatives in 2014 that are yielding positive results.

These include improvements to our Web site, the launch of call centers, enhanced sales training, improved lead tracking, enhanced search engine optimization strategies, integration of Internet leads with our database management system as well as branded vehicle reps and property signage.

These initiatives increased fourth quarter same community leads by 25%. And thus far in 2015, despite winter weather and the flu season, our same community move-ins increased 29% and deposits increased 24% over the same period in 2014.

In fact, the weekly average number of move-ins and deposits thus far in the first quarter of 2014 is greater than the weekly average of any quarter during 2014.

While attrition has been higher thus far this quarter than last, year's first quarter, we are hopeful that we will end the first quarter at least at the same occupancy level that we ended December.

Fortunately, we are not experiencing the severe impact that the flu had in the first quarter of 2013 or that the harsh winter weather had in the first quarter of 2014. The positive growth and demand that we are experiencing is encouraging and we look forward to building occupancy over the balance of the year.

We have improved the quality of our portfolio and enhanced our private-pay revenues by closing the only skilled nursing beds we had operated in two continuing care retirement communities. We also completed in January the sale of four non-core communities.

These actions will enhance our operating metrics and allow us to redeploy approximately $18 million of proceeds to accretively acquire newer, better performing communities in stronger markets within our geographically concentrated regions.

Eliminating these operations also helps sharpen our focus on our core strengths as we continue to successfully execute on our strategic plan.

We are making steady progress on our work to convert approximately 360 vacant, independent living units to assisted living and memory care units with more than half of the conversions compete at the end of 2014. I am pleased to report that the lease-up of our fourth quarter conversions has been strong.

Two communities received their permanent [indiscernible] licenses in October and the third received its license in December. The two communities that received their permanent licenses in October received provisional licenses in July and August. The three communities have 135 combined license units.

Since July 2014, occupancy levels have improved from 52% to 75% at one community, from 70% to 91% at another and from 85% to 96% at the third. Industry fundamentals continue to improve and demand for our communities continues to increase as demonstrated by our strong increase in move-in's and deposits.

NIC MAP also reported accelerated industry fundamentals for the fourth quarter 2014 as occupancy and rate growth improved while construction starts remained muted resulting in absorption outpacing new supply. These positive indicators suggest that gains in demand should lead to further improvement in occupancy as well as continued rate growth.

As we have discussed on previous calls, new construction has been muted in most of our markets, confirming that our value strategy acts as an economic barrier to entry for new development with replacement cost today averaging in excess of $200,000 per unit.

Average monthly rents of $3229 would have to be about 50% higher in most of our markets to generate a reasonable return on the cost of development, indicating the opportunity to realize significant rent growth before we expect to see new construction in these markets.

With strong industry fundamentals and improving economy and housing market, and limited new supply in other markets, we believe that our occupancies continue to grow to an optimal level of 92% to 90%, providing significant opportunity for additional, organically driven CFFO growth and increases in our owned real estate value and stock price.

Every one percent improvement in occupancy is expected to generate $4 million of revenue. $2.8 million of EBITDAR and $0.06 per share of CFFO. Our disciplined and strategic acquisition program which began in 2011 has been funded from internally generated cash.

In the past 3.5 years we have purchased 44 communities for a combined price of approximately $593.6 million. These acquisitions have generated a 16.2% cash on cash return with first year EBITDAR of $57 million in first year CFFO of $.92 per share.

Our success in acquiring quality communities in off market, non-broker transactions validates our competitive advantage as a highly respected and credible owner operator with the financial ability to complete transactions.

As our cash flow continues to grow, and our liquidity improves, our robust pipeline allowed us to continue our disciplined and strategic acquisition program that increase our ownership of high-quality, senior living communities in geographically concentrated regions and generates meaningful increases in CFFO and shareholder value.

In addition to reporting excellent operating and financial results, we have also made significant improvements to our balance sheet which Carey will discuss shortly. We have increased our cash balance, extended low maturities, reduced our fixed interest rates and improved our financial ratios.

The average maturity of our mortgage debt is now eight years with approximately 92% of our loans maturing in 2021 and after.

And as evidenced by the historically low interest rates on our recent financing and rate locks, we are benefiting from the narrowing of borrowing spreads due to increased competition amongst lenders, including Fannie Mae, Freddie Mac and life insurance companies.

Our operating strategy is to provide value to residents by providing quality senior living services at reasonable prices. Our fundamental competitive advantage that allows us to achieve solid operating results is our people and our culture. As we strengthen our competitive advantages, we are also lowering our cost of capital.

We continue to execute on a strategic plan that is focused on a very important objective of enhancing shareholder value through organic growth, proactive expense management and utilization of technology, as well as allocating capital to accretive acquisitions of high quality senior living communities in our geographically concentrated regions and cash flow and value enhancing unit conversions as well as community renovations and refurbishments.

Successful execution of our strategic plan has produced strong results. Since 2010, we have increased our percentage of owned real estate from 32.5% to 56.1%. We have generated a 17.9% compounded annual growth rate in EBITDAR on a 17.9% compounded annual growth rate in revenue.

Adjusted CFFO has grown at a 23.5% compounded annual growth rate and our EBITDAR margin has increased by 350 basis points to a record high quarterly margin of 37.5% in the fourth quarter of 2014. In addition over this time period, the weighted average interest rate on our mortgage debt has decreased 136 basis points to a current average of 4.63%.

We believe that continuing the successful execution of this strategic plan will materially increase our cash flow, our owned real estate value and most importantly, shareholder value.

Our track record demonstrates that we are successfully excluding on our strategic plan and I believe that we are well positioned to continue to make meaningful gains in shareholder value with 96% of our revenues derived from private-pay sources in an industry that benefits from need driven demand, limited new supply and an improving economy and housing market.

At this time, I would like to introduce Carey Hendrickson, our Chief Financial Officer, to do the company's financial results for the fourth quarter and full-year 2014..

Thank you, Larry and good afternoon everyone. I hope you've had a chance to review today's press release. If not, it is available on our Web site at www.capitalsenior.com. You can also sign up on our Web site to receive future press releases by email if you'd like to do so.

The company reported total consolidated revenue of $100.2 million for the fourth quarter of 2014, which was the first time in the company's history that quarterly revenue has exceeded $100 million. This was an increase of $11.2 million or 12.6% over the fourth quarter of 2013 with the resident and healthcare revenue up $13.1 million or 15%.

The increase in revenue is largely due to acquisitions the company made during or after the fourth quarter of 2013. Since that time, we have acquired 14 communities including one community that we purchased during the fourth quarter 2014. Operating expenses increased $5.9 million in the fourth quarter of 2014 to $59.7 million due to the acquisitions.

Our general and administrative expenses for the fourth quarter of 2014 were about $400,000 lower than the fourth quarter of 2013 after excluding the transaction and other one-time costs for both years.

Excluding those transaction and other one-time costs, our G&A expenses as a percentage of revenue under management were 4.1% in the fourth quarter of 2014, which is 110 basis points lower than the comparable measure for the fourth quarter of 2013.

As we noted in the press release, the company's non-GAAP and statistical measures exclude four communities that are undergoing repositioning, lease-up of higher licensed units, or significant renovation and conversion.

Our adjusted EBITDAR was $36 million in the fourth quarter of 2014, an increase of $6.2 million or 20.9% from the fourth quarter of 2013. This does not include EBITDAR of about $700,000 related to the four communities that we are currently excluding from operations -- from our results.

The company's adjusted EBITDAR margin was 37.5% in the fourth quarter of 2014, which as Larry noted, is a record high quarterly margin for the company and its 290 basis points higher than the fourth quarter of 2013.

Our full-year 2014 adjusted EBITDAR margin was 35.9% which was also a record high annual margin and was 100 basis points higher than the full-year 2013 adjusted EBITDAR margin. Adjusted CFFO was $13.5 million in the fourth quarter, or $.48 per share compared to $.52 in the fourth quarter of 2013.

However, the fourth quarter of 2013 included tax savings from a cost segregation study of approximately $.12 per share. So on a comparable basis, our adjusted CFFO in the fourth quarter of 2014 was $0.08 higher or 20% greater than the fourth quarter of 2013.

The contribution to CFFO from communities that required during or since the fourth quarter of last year, was $0.09, which is $0.01 greater than our expectations and public announcements related to these communities. Same community revenue increased $1.6 million or 1.9% of the fourth quarter of the prior year.

Same community expenses were about $400,000 less or 0.9% in the fourth quarter of the prior year. Looking at the three major expense categories, labor costs including benefits increased only 0.4%, food costs were up only 1.4% and utilities cost decreased 1.7% versus the fourth quarter of the prior year.

We are pleased that our same community results showed sequential improvement in the fourth quarter.

Our same community revenues were up 0.6% over the third quarter, building on the 0.6% sequential improvement that we experienced from the first quarter to the second quarter and the 1.1% sequential improvement we experienced from the second quarter to the third quarter.

Our same community expenses were $300,000 lower in the fourth quarter than the third quarter, resulting in same community NOI growth of 2% from the third quarter to the fourth quarter. Our same community occupancy was up 20 basis points from the third quarter to the fourth quarter.

This was the fifth consecutive quarter that our same-store occupancy as increased. Our average rent was up 30 basis points. As Larry noted, we are making steady progress on the conversion of approximately 360 units to higher levels of care.

Approximately 200 conversions were completed at year end 2014 with the remainder expected to be completed in the first half of 2015. The lease up of the units that have been converted to date is going very well.

As Larry also noted, still we don't expect to see noticeable impact from the conversions until the second half of the year with a more complete impact from these conversions in 2016. Looking briefly at the balance sheet. We ended the quarter with $51.5 million of cash and cash equivalents, including restricted cash.

An increase of $12.2 million from September 30, 2014. Approximately $9 million of increase was due to net proceeds received and the refinance we completed during the fourth quarter. Otherwise we generated approximately $12 million in cash related to our operations and changes in working capital.

And we invested $4.1 million of the cash as equity to complete the acquisition of one community and spent $5.3 million on capital improvements. Our mortgage debt balance at December 31, 2014 was $642.5 million at a weighted average interest rate of approximately 4.7%.

We added approximately $10.9 million of debt in the fourth quarter related to the community that we acquired at a rate of 4.5%, and we had a net increase in debt of approximately $10.5 million related to the previously noted fourth quarter refinance.

At December 31, all of our debt was in fixed interest rates except for six bridge loans that total $65.2 million which were variable rates everything approximately 3.9%.

By the end of the first quarter of 2015, we expect to have paid of our refinanced four of the bridge loans and therefore expect to have only two remaining bridge, loans totaling approximately $20 million.

And with our new first quarter financings at sub 4% rates, including the one at 3.55%, our weighted average interest rate will continue to decline to approximately 4.6% at the end of the first quarter. Looking at our expectations for the first quarter.

The first quarter of every year is generally the most challenging as the cold weather and winter conditions result in increases in costs such as utilities and snow removal services. Attrition rates are also generally highest in the first quarter of the year.

That said, we expect the first quarter of this year to compare very favorably to the first quarter of 2014. During or since the first quarter of last year, we have acquired nine communities that we expect to contribute and incremental $0.05 to $0.06 per share of CFFO in the first quarter of 2015 compared to the first quarter of last year.

Also we had higher than usual winter related expenses in the first quarter of 2014 due to a particularly harsh weather and we would expect improvement in the first quarter of this year as the weather in most of our locations so far has been more in line with normal expectations.

This is tempered slightly by an approximate $0.02 decrease in CFFO in the first quarter of this year versus last year related to our recent dispositions. But overall we expect healthy improvement in CFFO in the first quarter of 2015 as compared to the $0.28 of CFFO that we reported in the first quarter of 2014.

When considering the sequential comparison of the first quarter of 2015 to the fourth quarter of 2014, we previously noted the $0.02 decrease in CFFO in the first quarter from the sale of non-core communities.

Also the fourth quarter of 2014 included a $0.04 contribution to CFFO from an increase in prepaid resident rent that we would not expect to repeat in the first quarter. And as is normally the case, we expect the first quarter to have utilities and other winter related costs that are around $700,000-$800,000 higher than the fourth quarter.

In looking at the full year of 2015, with the continued positive momentum in our operations and successful execution of our strategic plan, we are very optimistic about our prospects for 2015. For our core operations, our goal is to grow revenue at a rate at or near 2.5% with expense growth 50 to 100 basis points less than revenue growth.

We also expect to improve our core occupancy by 100 basis points over the course of the year achieving these goals will result in core NOI growth in the 4% to 6% range. We will also have a full year of contribution from the acquisitions that we made during 2014. As such we would expect and incremental $0.11 in CFFO from our 2014 acquisitions in 2015.

The four assets we sold contributed approximately $0.08 to CFFO in 2014 but we expect to accretively reinvest in net proceeds from the sale into better performing new communities.

We noted in today's release that we have already acquired one community in the first quarter of 2015 and are conducting due diligence on an additional $57 million of acquisitions that we currently expect to close in the first or second quarter.

And while we don't target for acquisitions for 2015, the acquisition pipeline is robust and the financing environment very favorable, so we would expect to continue to add high-quality communities that are a good fit for our portfolio during the coming year.

So we should have a nice contribution to 2015 results from acquisitions that we will make in 2015. Also, we expect to begin to see the impact of the 360 IL to AL conversions on operating results and occupancy as the year moves along, particularly in the second half of the year.

We expect the full impact of the conversions to be approximately $0.20 per share of CFFO once the units are fully online and leased up. And we think we could see somewhere between $0.05 to $0.10 of that this year.

Taken altogether, as we execute on our strategic plan in 2015, we expect significant growth in our operating and financial results, which we expect to translate into excellent growth in shareholder value. That concludes our formal remarks and we would now like to open the call for questions..

(Operator Instructions) We will take our first question from Darren Lehrich with Deutsche Bank..

Hi, it's actually Dana Nentin in for Dan. I guess first, I was wondering if you could provide color on occupancy levels in your assisted-living facility versus your independent facilities at year-end and maybe how that compares to last year..

Sure. Yes. Hi, it's Larry. If you look at our AL occupancies at the end of the year, on a consolidated basis the AL communities were occupied at 89.6%. That compares to 89.3% at the end of the fourth quarter of 2013. The IL were 86.4% compared to 84.9% the prior year. So we saw 150 basis point improvement in independent living.

It's a combination of some of those units being converted to AL.

And the one thing that I will comment on the conversions that has been a pleasant surprise in the fourth quarter was the improvement in the attractiveness and demand for independent living units in those converted buildings, as families are comforted to know that if their parent needs more levels of care, they could be accommodated in the community.

We also found that 50 or 60 of IL residents in those communities have now asked if we can provide services to them. So we are getting additional revenue sources by providing more services in those communities to our independent living residents..

Okay. Great. And just on the move-ins. It's great to see continued strong move-ins. I am wondering though that given the increasing mix of assisted-living which typically comes with lower length of stay than the independent living that you may need to move more people in to keep pace with occupancy gains.

So I'm wondering if there is any other metric you think might be more helpful to focus on just in light of that dynamic..

Well, if you look at the attrition levels, they clearly were better in the fourth quarter. We do see higher levels.

I will tell you though that by having multiple levels of care in our communities where agents can transfer from IL to AL and AL to memory care, we actually think that we extend the length of stay of that resident and we think that also will have the effect of improving our overall occupancies..

Okay. Great. And then one last housekeeping item.

Can you just update us on the timing of when those four communities that are being repositioned will come back online?.

Yes, we would expect them to come back online sometime towards the end of 2015, they are being ready. But then we will have to lease them up at that point.

So from a financial impact standpoint when we might actually add them back into a numbers, it's going to be after we get them leased up which could be probably sometime in late 2016, I would say, when we would actually begin to add them back to our numbers..

Okay. Great. Thanks a lot..

[indiscernible] on those attrition rates, just to give you. It's interesting, our IL attrition rates in the fourth quarter were 37.6%, down 70 basis points from Q3. In those properties that have IL and AL, the attrition was only 38%, and they are down 4.7% from the prior quarter.

So we obviously see that the ability to have multiple levels actually extends the stay in over the entire operation, will actually reduce attrition..

And up next we will take our question from Joanna Gajuk with Bank of America Merrill Lynch..

So in terms of the cost control, very impressive this quarter.

But still I want to ask here your outlook going forward because there seems to be maybe some pressure on labor cost issue due to just, I guess, improving economy and tightening labor force there but also maybe due to, you changed your portfolio, to your earlier comment about more sort of AL. And that requires higher activity and that’s more labor.

So how do you view that dynamic and what's your outlook for labor cost expense growth this year or going forward over the long term as well..

Joanna, let me just give you some stats on January and the fourth quarter and then my view and then Carey will have to contribute as well.

It's interesting, one of the most important metrics I track every month is our cost per meal of food and labor and I see particularly at the lower level minimum wage where that is, cost per meal in January 2015 per labor, per meal was $2.54 up one [indiscernible] over $2.63 in January 2014.

And you saw in the press release that our labor costs were up 50 basis points, I think, year-over-year. So I believe that we find that we are not sensing at this point pressure in labor. We happen to operate in states -- 73% of our operations are in seven states, Texas, Indiana, Ohio, Nebraska, Missouri, Illinois, and South Carolina.

Five of those states have not had any changes in their minimum wage. There is CPI judgments in Ohio and in Missouri. And the [hourly] [ph] that we have at the [dietary] [ph] level, which is mostly students working 20 hours or so a week. So we are not sensing the pressure.

Carey can talk more about our outlook for the year, but in our budgeting we are expecting wage growth to be very consistent with what we saw this past year. I will say, I want to give credit to the team and Carey's leadership, with him coming on board in May. And really operations and marketing, very successfully executing on better controls.

We did have higher overtime, higher contract labor last year, that has really been reduced significantly. So I feel very good that the team is executing well. That [indiscernible] onsite staff, we had new systems in place that are better assessing on a timely basis the overtime and other wage dynamics.

So I think overall our systems are working extremely well. We have been proactive in this area and I think that wage cost and labor costs will be very well controlled and I will let Carey talk more about it..

I agree Joanna, and Larry said it well. When we look at labor cost going forward, I would expect it to continue to be in the same 2.5% to 3% range of general increase, just for labor, over the next at least 18 months, 18 to 24 months as far as we can see out at this point..

And then what about the other major cost item, food and utilities.

Any color you can...?.

We are very lucky. I spoke with Keith Johannessen, our COO, today at lunch about this. We implemented about 5 year ago, a food purchasing plan with Premier, our group purchasing organization with U.S. Foods. And our raw food cost again is up I think 1%....

1% for the full year..

1% for the full year. And we have contracts for five more years. So we are not seeing any pressure on food. I can give you the January numbers as well. It's funny how I get a lot of reports every month and the second report I look at is the food report because it's a very early indicator just to see any changes in our raw food and labor costs.

And, again, year-over-year, they are very well controlled. I think the raw food costs were up a couple of pennies per meal this January compared to last January. So we are not seeing any change and we actually have a lot of contracts on food. The other strategy that’s helping us is the fact that we operate in geographically concentrated regions.

So distribution costs are coming down because we are getting food deliveries in concentrated markets. So that also has added some benefit in our cost. But if you look at our food cost over January, they are up exactly 1%. It was exactly a 1% increase. And I would tell you that, if I look at the full year, there was really no surprises in any month.

So it's been very well controlled and very consistent and we expect that to continue Joanna..

Great. And then on a different topic. Thanks for the color in terms of the outlook for the year for occupancy.

But did you mention what do you think that the pricing growth would be for the year?.

We said we thought that our rates would probably increase around at or near 2.5% on overall basis for next year..

All right. Because it sounds like this quarter, definitely things improved there, but I guess it's still sort of much lower than 2%, it was up -- you know same store pricing up 1%. So just want to....

At same store we have got 1.9%. Same store revenue....

And sequentially, also Joanna, that was sequentially. As we have spoken previously, we had some pressures in occupancy in 2013 and the first part of 2014 where we had a number of quarters where we were dropping rate. So it's accelerated as we sort of pick up.

So when you look at the comparison, I think the sequential rates are actually going to be more helpful because of the fact that we did have some drops in the earlier part of this year. So when you look at last year, rates dropped from the fourth quarter into first quarter. So they are recovering.

But I think we talked about that we had about, I think it was about [100-190] [ph] basis points over the last three quarters. So we are trending pretty close we think to that target..

And up next we will take Daniel Bernstein with Stifel..

So when I think about your acquisition pipeline, looking at your geography concentrated in Texas. When you are looking at acquisition are you thinking about -- how are you thinking about diversifying into other geographies. Do you any set goals, do you want to bring Texas NOI down to 10% or 15% in new geographies to reduce geography risk.

Or is there some other strategy in terms of the acquisitions?.

Well, actually Dan, I don’t think we have bought a property in Texas since 2011. I think the last portfolio was the [indiscernible], six properties in Texas. Our acquisitions have really been in other parts of the country. We just closed on a property this quarter in Wisconsin. I am pleased to say that we bought a property that opened in April of 2014.

It's 100% occupied with a wait list and we are receiving over 16% return on the investment with the financing in that place we have bought. And now we continue to grow Wisconsin. We have bought last year in Green Bay. We bought outside of Kohler, Wisconsin. We bought in Georgia, Canton. We bought in really Ohio, Indiana.

We really have not grown much in Texas. We took on this signature portfolio in the third quarter of 2010. Those were 12 Texas properties. We had a six property acquisition in Texas. And we may selectively have one here, there, because there is still a very good market.

But actually we had been really diversifying quite well, both geographically in regions and within the regions with the number of new states. Growing Massachusetts, we have grown in South Carolina, Georgia, I mentioned Wisconsin. So most of the growth over the last couple of years has actually been out of Texas..

Okay. And then in terms of acquisition size. You really haven't done a large portfolio like $200 million or $300 million. Are you looking at those? Are you comfortable doing those? Or would you rather stick to these, stick to the more smaller one off acquisitions where you get a better yield and you don't have to issue any capital.

Just trying to think, again strategically, what you are comfortable doing in the pipeline?.

We are focusing on the smaller transactions. I will say that the size of the individual acquisitions, we mentioned a $30 million acquisition, that's larger than typical. Our typical acquisition has been about say $15 million. We are looking at things even larger than $30 million single assets.

I got to tell you, I have never been more proud and more pleased with the quality of the acquisitions that we are seeing. Sellers are coming to us. Almost all relationships are repeats. Right now the Wisconsin property is relationship oriented with those other properties.

Property we are closing this quarter is with the seller that we have a great relationship with that we have done other transactions. We are now looking at a larger transaction from a seller that we have bought a property from in 2011. We also bought a property from an affiliate last year. They have come to only us.

So as long as we are -- and I have never seen better interest rates. It's amazing to see how desirous or friendly lenders are. I mean we have wonderful relationships with Fannie Mae. The life companies now have gotten into the mix. We have been involved with Freddie over the years. And Arcadia, Wells and KeyBank, all of the lenders that we deal with.

As I mentioned earlier, it's unusual, when rates come down usually spreads widen. We are now seeing for the first time in my career that spreads have narrowed as rates have come down. And when you look at our 3.55% 10-year fixed-rate, the 3.85% that we just completed, it's terrific. So last year we bought 8 properties for $160 million.

We paid $195,000 a unit and we generate on first year cash flow about 16.5% return. And about, first year EBITDAR of $15 million. When I look at the cap rates in this industry, and we won't talk about cap rates for obvious reasons, but I will tell you that we feel that there is value that we have never appreciated.

The quality of our management, the repetition. And the ease and efficiency of transactions of being the buyer versus having to deal with the joint-venture partners or a REIT. A lot of these sellers find that the transactions with their [idea] [ph] or any lease, REIT structures are just too complex.

They have to have an OTA for the [change] [ph] of the operations. They have a real estate agreement. They are negotiating with multiple lawyers. It's very costly. We are dealing with less sophisticated, smaller, operators that are very passionate about their business.

And it is very easy for them to come to us as well as the fact that the cost of our relationship with lenders, we have sellers coming to us know that we will be approved if we assume their debt. The other thing I will touch upon is the debt that we are borrowing at, which we have reduced down to a 4.6% rate, is assumable.

And the maturities now go out mostly after 2021. So when I think about the real estate value that we are creating for our shareholders and we look at this quite a bit with our board, we also think that there is tremendous value longer-term because those interest rates which are fixed. If we ever sell those assets, we will go with those assets.

So we are very comfortable with our strategy. We have plenty of opportunity to make meaningful gains. Last year we increased $0.23 a share. 2013 per share [capital] [ph] was $0.20, 2012 was $0.34. So if we can continue that type of pace of growth and continue our focus. The other thing, Dan, we are not distracted.

We sell off properties that are challenged, we are getting a much more homogenous portfolio. We are streamlining the operations geographically and we are seeing results. So I think that if we continue with that strategy, we won't have the confusion and the complexities that other companies have that have taken on larger transactions.

We can focus on our competitive strengths and our resources and let our people execute very well to create significant value to our shareholders..

Thanks, Larry. And Larry, just one more quick question on the operations side. How do you compare this flu season in terms of move outs you have seen to the 2013 season.

Is it as tough as that season, do you think? Or is it a little too early to tell, we won't know for another month or two when the virulence of the flu is actually going to impact move outs more than normal?.

We have had move outs, I mentioned that. But I would tell you, it's lower. The biggest change, Dan, 2013, we quarantined dozens and dozens of buildings because the flu was so widespread within the building. I have only heard that one building out of 117 that had no quarantine. So we are not seeing it. And the traffic has been terrific.

So that’s really telling when we see the large increase in move-ins and deposits despite the flu season. It did start earlier in Texas. So that’s pretty much subsided. And again, it's truly the cold, I mean it's still continuing, we will keep our fingers crossed. But the good news is, we lost 115 net residents in the first quarter of 2013.

We are now projecting to be flat if not slightly up, for the quarter. That makes a big difference. And hopefully we have the momentum and encouraging demand for the balance of the year..

At this time we have one question remaining in the queue. [Operator Instructions] We will take our next question from Ryan Halsted with Wells Fargo..

So I wanted to, I guess go back to the rate question. You mentioned that you have a number of communities where you are looking at rent increases when occupancy gets to some point versus others where you are looking at rent increases.

How are you thinking about this coming year in that sort of balance? You think there is more opportunity where you might be able to push rate where there is that kind of opportunity?.

We implemented a 3% rate increase in our street rents in January in most of our buildings. We have spoken previously how we categorize our buildings by occupancy. In green zone, red zone and yellow zone. And I would say that probably 65% to 70% of our buildings are in that green zone, average about 95%.

What we're doing on the red zone, which are the ones that have that below 85% occupancy, and that's where you start to see some specials and discounts. But we typically do it for a very short window.

For example, if we see in the month that we need to create some more demand in those units, we will have a special on a reduction in rate for the first three months. But they have to move in within a couple of weeks. And then it's removed. So it's a very short-term phenomenon.

But what we're finding is that in those markets where we feel that we have to do some discounting to increase rate, we question, is there is a fundamental issue. Is it the staff, is it the physical plan, is it level of care. If it's any of those, we take an action to make changes, converting units makes a huge difference.

Look at the numbers I gave earlier on the fourth quarter. I mean the 52% occupied building was a building we acquired that was not appropriately [licensed] [ph]. And we actually evicted residents because -- we moved residents out because he found that we needed to get the license to care for them and are obviously making strides.

But you see that we had a property in July that was 70%, it's now 91%. So the conversions make a lot of difference. And then if we feel that it doesn't improve our situation by allocating resources to the asset, we are selling them. We mentioned the four properties that we sold earlier this year.

It's interesting when you look at their performance compared to our portfolio. Their average occupancies were about 550 basis points below our average. Their margins were considerably below our margin. In fact, if you look at those four buildings, in the fourth quarter their average occupancy was 550 basis points below our average.

Their average rate was 44% lower than our average and their operating margin was 10.5 percentage points below our average.

So where we feel that there is a very good time to be selling assets this market and to the extent that asset is not strategic because of geography or the market, we will be more proactive in making sales and then using that cash to reinvest in higher performing accretive acquisitions.

So as I said, we have a game plan, a strategy for every asset in the portfolio. We as a management team review it every month. We met this week on Monday. It was a little cold and icy in Dallas so we did it by phone, but we have a meeting.

And we talk about these issues and I'm pleased to see in our fourth quarter and expect to continue to see very solid results from those, implementation of those strategies..

Very helpful. I guess for the bulk of your communities, I mean it seems like you are increasing your expectations for the rate outlook in '15. So you do feel pretty strongly about the rate opportunity that you are looking at sort of for the all the communities outside of the conversions as well as those that you have rationalized..

Yes, exactly. As I said, we implemented 3% rate increases. The other thing I want to talk about is level of care charges. We implemented software technology in company years ago that better allow us to assess care for the resident and then make sure that we are billing appropriately.

In August, as part of the strategies I talked to earlier, we increased level of care charges. We did again in January. We saw those revenues increase by over $2 million in the fourth quarter from the August implementation.

So in addition to the rate of growth, we are I think doing a better job and our on-site staff is doing a better job, really implementing the use of our technology to make sure that we are properly billing for the care levels and we are increasing -- we have increased the fee levels across the board.

That also should be a driver of some revenue growth..

All right, great. So you spoke in the past about the unit conversions, adding additional services as ways also to drive -- I assume that's sort of different from what you are just describing. I just want to clarify....

That is different ... yes..

Those additional services, are they reimbursed under a state waiver program?.

No. These are all private-pay. There is no waiver program. The services I'm talking about, it's interesting, three years ago we began to rent offices in our building [indiscernible] buildings to third-party home healthcare companies.

And we have a wide array of services that third parties are available, whether it be medical services, the dietary, home health, we have therapy, rehab, different programs in the communities.

As we got licenses in these buildings that have independent assisted living, a lot of the independent residents asked if we could provide those services rather than taking them from the home healthcare companies. So we are probably receiving on average about $250 a month incremental revenue from that resident to do lower level care.

Maybe doing some reminders on medication, maybe helping with bathing. But they are not at the level of limitations of ADLs, where they require assisted living. It's kind of a intermediate level between the independent and assisted and we are seeing more and more of our resident ask for those services and we are able to charge for that.

That’s different than the care plan which is specifically dedicated to our assisted living. Another new stack for company is we now have 52% majority AL and 48% majority IL. The first time in the company's history that the majority of our units are assisted living.

And there is where we are getting level of care charges in addition to the base rate for the services that we provide our residents where we have the assisted living license..

Got it.

And the lastly, on the conversions, just sort of the outlook for the contributions, I just wanted to maybe clear or better understand, I mean the range that you gave, is that assuming much, if any contribution from the additional conversions that are still unlicensed?.

You mean the ones that have only started being licensed in 2015?.

Right..

The impact from those will mostly come in 2016 because it takes six to 12 months to lease them up and that’s when you really begin to see contributions. So most of the contributions for things we are doing now, like right now on the first and second quarters 2015, we will see that impact in 2016.

The '15 impact we will see will be primarily from those we have already done to this point. As the year goes on and they lease out, so we will have more impact from those towards the end of 2015..

Okay,.

And you brought provisional licenses, are any of the remaining 160 nearing getting a provisional license?.

At this point, I don’t think so. Because those were properties where we converted the entire building. It's state by state it's different. So I don’t believe that at this point the additional conversions have provisions license. They are just getting permanent licensing.

We are working right now for example, where we had to put a sprinkler system into a building. That would be completed in February and we are hopeful -- it's out of our control but that should be licensed by late in April, maybe a little earlier.

It depends how quickly we can get the fire marshals into the building and make sure that the new sprinkler is compliant with code. But the other licenses that we are doing for the balance for the remaining 2 to 360, I don’t believe there are provisional licenses.

Those were somewhat unique, those cases, where we decided to license the entire building and got a provisional license. It was part of the process before you get the permanent license..

And we will take our next question from Dana Hambly with Stephens. Dana, your line is open. And we will move on to Todd Cohen with MTC Advisors..

The G&A number looked really good.

I was curious, I don’t have the models in front of me but I was curious as to how that compared to the third quarter? And are you going to be able to kind of maintain these types of levels?.

Yes. They were lower than the third quarter by about $300,000 or $400,000 and we feel really good about our run rate on G&A. We look at that as a percentage of revenues under management and certainly there will be some things that we will need to do in 2015 to grow G&A a bit to accommodate the growth we have experienced.

Now when you have the growth, you sometimes need additional management, accounts and that kind of thing, to accommodate the growth. So we will have some growth in that. But as a percentage of revenues, it should continue to be very well in line and we do feel really good about G&A and how we are controlling that.

We are being proactive in controlling that expense just like we are of all our other expenses in the company..

Yes. This year we had selected new hires. We hired [indiscernible] on quality assurance that began in December. As Carey mentioned, every 10 or so buildings, we need more accounting staff, maybe some more regional staff.

But one of the questions about the [indiscernible] part of our strategy in these acquisitions is to be in the geographies where we operate so we can level off the infrastructure and make sure we are efficiently using our regional infrastructure of operations and marketing. And that works very well.

But there is nothing that I can think of that will stand up for making changes this year. As Carey said, there are some new hires across the company. But it's fairly minor.

And again, as the revenue increase, that should continue to help make that percentage look very much better because you are just dealing with a higher denominator on the revenue base..

And then did we get a little bit of help on the medical side, on the medical loss side.

Was that a bit more controlled in the fourth quarter than it was a year ago?.

Yes. I will tell you, Todd, we took a proactive approach to healthcare. We self-insure. We implemented new plans and new programs in June of 2014. We introduced two new lines of insurance for our staff. Obviously under the ACA we are more employees throughout the country, partaking in coverage.

We reallocated the sharing of contributions through payroll withholding on different plans. And it's really worked extremely well, our actual healthcare costs have gone down. Our results have gone up. And even January, we just got very very favorable numbers to report in January.

I think we are running $200,000-$300,000 below kind of what we used to run normally. And this is not something -- again, this is now the seventh month of the new program. So month-to-month something could be there. We do have we do have[cashed] [ph] insurance for claims in excess of $175,000.

So I think that the structure that we spent a lot of time on with our consultants and the new plan has been well-received by our employees and has really brought down our healthcare cost and gives as much better control than we had previously..

And up next we will take Dana Hambly with Stephens..

Sorry, this phone has confused me. Could you -- Larry, just on the transactions you announced January 29, I'm just trying to get a sense of what your pro forma cash balance is now for everything that you have done..

I mean we can tell you right now. We have it. I can tell you right now..

Our unrestricted cash is about $50 million and including the restricted cash it's a little over $60 million right now from a cash standpoint. So we are in very good position..

I think that's a from maybe $20 million in the third quarter. What really I am very pleased with, Dana, is that, and I think Carey covered in his remarks, with all the acquisitions we are making, with all the CapEx we are making, operating cash flow is covering that. And then these transactions, the refinance, the sales is in addition to that.

So right now we have unrestricted cash of $50 million, total cash is probably about $62 million. We are looking at ways of maybe freeing up some of the restricted cash as well. But last quarter cash flow I think was $12 million. So we are running now at a higher rate on generation of cash as well.

So we feel comfortable that we have the cash to fuel growth and can continue to fund this growth from internal sources..

Okay. That leads to the next question. I know you don't guide anymore but you had in the past talked about and annually spend of about a $150 million for acquisitions. And you are a bigger company now and you have plenty of cash to do more than that.

I just wonder if, should we be expecting a record year or is there something operationally that just prohibits you from just bringing on too many buildings in one particular year? Or is the pipeline not supported? Just trying to get a sense there?.

There is nothing operationally to limit our growth as far as acquisitions. It's really our strategy and discipline. I am very pleased every quarter that we are reporting results that beat our estimates. So we really buy high-quality. I would say this, properties we acquired in the last year are nearing 100% occupancy with very strong margins.

So they have been great. We are off to a great start this year. We have never had the first quarter like we have now, which is about, in '15 that’s $62 million right now, $70 million. So we already have kind of $70 million circled. We have a much bigger pipeline behind that. So I feel very comfortable that we have a very good year on acquisitions.

We are just a little cautious in giving guidance because we want to keep our alignment of interest where we buy for the right reason which is what's right for our shareholders, right for our company. Of course cash is very precious to us, so we want to spend is wisely.

And I don’t want to be in a situation where we give guidance and we are rushing to do deals because we don’t want to disappoint. So I feel very good about our cash position. I feel better about our pipeline, quite frankly, both on the quality and robust it is. So I think we can put cash to work pretty well.

And don’t forget, we are doing some expansion in the buildings, we are doing conversions, we are putting money back into our assets as well. Because we also think a very strong driver of our growth is the renovations and refurbishments of our buildings. We have a very high return on that investment to complement the acquisitions.

So we will be able to use that cash, I think, prudently. I think it will add a lot of shareholder value as well as real estate value and cash flow..

Okay. That’s helpful. And then just on that last point, Larry, for CapEx. One, could just remind me what we should be using for routine on a per unit basis.

And are there some big projects this year on top of that?.

Yes. Dan, this is Carey. From a CapEx standpoint, I would expect a recurring CapEx, mainly CapEx have continued to be in that same range, it was about $400 per unit this year. And it would be in that $400 to be $500 at the max per unit this year, with total capital expenditures which include those in the same kind of range we had this year.

They were $18.7 million this year, probably $16 million to $18 million in 2015..

I will point out, what is interesting on acquisitions. The fact is that in the last three years, we made these acquisitions of 44 properties. That’s about, I guess a third of our portfolio. Most of these buildings are five years or newer. So they really don’t require -- or first, they were all refurbished.

I mean, Dana, we bought a building and the immediate repairs is striping a couple of parking spots. $3000 or $5000, that’s it. And we are selling some of the properties that we don’t have t renovate or refurbish. So we are being judicious in how we allocate our capital to or portfolio.

So if we are going to spend money on the assets because we have the conviction because we are going to get an above average return, quite frankly, give you a better return than the acquisitions. If not, we will dispose off the asset.

But what's interesting is that 44 of our buildings and the 12 signature buildings, that’s 56, half of our portfolio is probably five to seven years old. I think we probably have the newest portfolio of any of the companies. I think that’s something that no one is really focuses on.

But we don’t have bankrupt acquisitions, we don’t have older properties in despair. We have nothing in distress. I mean I invite everyone on this call at your leisure to have lunch with any community any day you want. It's our capital hosted, and I am sure that you will be very pleased with the setting, the food, and the staff.

And if not, please let me know. But I really do feel very -- it's really interesting that so much of our portfolio is young. I mean we have really changed this company in the last four or five years in every way.

And probably one of the real telling features in why we are outperforming our peers is we are buying newer, better quality portfolios that really continue to outperform..

I like the enthusiasm, Larry..

Thanks, Dana..

Just a couple of more, Carey. Just talking about the first quarter this year versus last year. I want to say last year there were $0.06 or $0.07 from the weather but there were some other things in there as well, referral fees and stuff like that.

How much was the weather, the bulk of that $0.07, $0.08 or whatever it was?.

Right. So it was $0.07 that we actually pointed out last year. And about $0.04 of it was related to higher than usual weather related cost.

The remaining $0.03 for real estate tax and referral fees were really about comparisons to the previous year, the first quarter 2013, because there was an unusual property tax credit that was in the first quarter '13 which wasn’t in the first quarter '14. And then referral fees were higher in the first quarter '14 than '13.

As our leads from Internet sources like a place for mom have increased. And so really it's the $0.04 related to higher than usual weather related cost that we would expect to get back, if you will, on the first quarter 2015, versus the first quarter of '14..

All right.

And then in this quarter, the fourth quarter, there was $0.04 that was unusual or what did you call out there?.

Well, that was from the prepaid resident rent. You know that’s an ongoing -- you know as it relates to prepaid resident, it's just how many people come in and give us a check at the end of the year.

With the holidays, sometimes people will come in and give us a check before they leave because they are with their families and they want to make sure that we have their payment for the next month prior to the end of the year. So we had an increase in that.

And you never know at the end of any quarter whether that’s going to be a positive or a negative for you. This quarter was a positive for us. So we don’t -- in our forecasting, we don’t project those to be either positive or negative. We just assume they are going to kind of a zero basis for those.

But it was positive this quarter and we will take in them. And it's real fast..

And we go next to Tyler Pearson with Stephens Inc..

You guys answered my questions. Thank you very much..

And then we will take our final question from Joanna Gajuk with Bank of America Merrill Lynch..

The question that I had, I want to follow up on the G&A ratio. Clearly this was the lowest ever if you exclude transaction spend, transaction cost, it was below 4%. So are you just saying that you feel comfortable about this level going forward or you are saying there could be some pick up.

But, I guess, if we are talking about as a percentage of revenues, that’s how we should be thinking about it?.

Well, as a percentage of revenue excluding the transaction cost, it was the 4.1%. And you know, really one of the main reasons it was down this quarter was because of the better health plans experience that we had. And so those can go from quarter-to-quarter, you don’t know what's expected. We have had very good experiences we spoke about.

And so I would expect that good experience to continue and with the increase in revenues we have, I don’t think that our corporate costs will increase as much as our revenues will. If that makes sense to you. So I think that we will stay in a very good position from a percentage of revenues standpoint..

Great thanks.

And then just lastly, with all this refinancing activities and all that, do you have a run rate, sort of interest expense number to think about probably?.

Well, it will be similar to what we had in the fourth quarter. Because we had some that came out because of the dispositions but then we added some in because of new acquisitions. So I think it would be still somewhat similar to the fourth quarter..

And it appears there are no further questions at this time. Mr. Cohen, I would like to turn the conference back to you for any additional or closing remarks..

Well, again, we are very pleased with the fourth quarter. I apologize for may enthusiasm but I think if it was a quarter to be enthusiastic, this is it.

I think it does demonstrate that we have really turned the curve and seen some very positive results from a lot of the hard work that I want to thank all of our team members for a very very good job, well done. And we are very excited about the outlook for the balance of the year and I look forward to seeing many of you over the next few months.

If any follow up, always feel free to give Carey or myself a call. And we wish you a good evening. Thank you very much..

This does conclude today's conference. Thank you for your participation..