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

Chad Vanacore - Stifel Joanna Gajuk - Bank of America Ryan Halsted - Wells Fargo Securities Jacob Johnson - Stephens.

Good day, everyone and welcome to the Capital Senior Living Fourth Quarter 2016 Earnings Release 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, risks 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'd like to turn the call over to Mr. Larry Cohen. Please go ahead..

Thank you. Good afternoon to all of our shareholders and other participants and welcome to Capital Senior Living's fourth quarter and full year 2016 earnings call. I want to thank our strong team at Capital Senior Living communities across the country for providing our residents with exceptional service.

I am extremely proud of their hard work and dedication. It is our talented employees that give us such great confidence in the future of our company and the continued quality care we provide our residents, and the long term value we are creating for all of our stockholders and other stakeholders.

As announced in December, we were saddened to lose Keith Johannessen, our President and Chief Operating Officer. I had the good fortune of working with Keith for more than 20 years and witnessed firsthand, his empowering leadership and the enormous impact he had on mentoring and developing the finest operations team in our industry.

Our solid fourth quarter 2016 results were supported by the continued implementation of our clear and differentiated real estate strategy to drive industry-leading growth and superior shareholder value.

Attrition and healthcare claims which were unusually high in the third quarter returned to more normal levels in the fourth quarter and we continue to be well insulated for new supply and wage in most of our markets.

We also made steady progress on important operational and corporate objectives related to positioning the company for sustained growth, including the announcement of the acquisition of one community in the fourth quarter and the strategic purchase of four communities we previously leased as we look to continue to increase our real estate ownership.

As we look forward to 2017 and beyond, we expect the continued execution of our strategic business plan to produce outstanding in all of our key metrics.

In addition to core growth in our operations, our growth will be enhanced by the significant renovations and refurbishments we’ve made across our portfolio and even greater by the return throughout this year of 776 total units currently out of service due to conversions and repositioning’s and we have a robust acquisition pipeline.

We are conducting due diligence on a number of acquisitions that will allow us to continue to increase our ownership of high quality senior housing communities in geographically concentrated regions.

Capital Senior Living is well positioned to drive growth and long-term shareholder value and our outlook is supported by the fundamental strength of our business model. We are attractively positioned in the highly fragmented senior housing market and we are uniquely positioned for continued success.

We’ve a capital plan that supports our long-term growth initiatives and a track record of strong growth. We remain laser focused on executing on our long-term sustainable real estate focused growth strategy.

The main pillars of our strategy include, continuing to pursue accretive acquisitions, increasing our owned portfolio and converting units to assisted living and memory care. The management team and I firmly believe that these three areas of focus will pave the way for sustainable organic growth over the long term.

From an operational perspective, achieving core organic growth is at the center of everything we do. Increasing occupancy rates, driving pricing improvements and executing on cost containment initiatives, are all key to that objective.

We are pursuing occupancy improvement where opportunity exists and increasing average rents through market and as rent increases, as well as level of care charges.

We are also diligently and proactively managing our expenses and through renovations and refurbishments, we are enhancing our cash flow, maximizing our real estate value and driving higher overall revenue. Acquisitions continue to remain a core component of our plan to drive shareholder value.

We have a proven track record of strategically abrogating local and regional operators in geographically concentrated regions and our success in acquiring high performing communities at attractive terms is a testament to our ability to effectively source and close deals.

This disciplined and strategic acquisition strategy leverages our strong reputation among sellers, our robust pipeline of near to medium term targets. We're deploying our cash into strategic immediately accretive acquisitions.

We completed more than $138 million of acquisitions in 2016 and they are expected to generate a 15.8% first year return on equity. We closed an additional $85 million in January 2017 and are conducting due diligence on additional acquisitions of high quality senior housing communities in states with extensive existing operations.

Going forward acquisitions will remain a key component of our capital allocation strategy. With these announced transactions, we continue to increase our owned real estate portfolio and we continue to believe that the ownership versus lease model provide significant strategic and financial benefits.

Capital Senior Living is one of the largest senior housing owners by percentage and since 2010; our real estate ownership has increased from 32.5% of our total portfolio to 64.3%.

By increasing our owned portfolio, we will be better positioned to generate significant and sustainable cash flow and real estate value, optimize our asset management and financial flexibility and enhance our margin profile.

We are confident that increasing our owned portfolio over time is an effective way to increase the long-term value we are delivering to our shareholders as a focused real estate company. We also have a long history of driving significant occupancy improvements through accretive conversions.

We converted 400 units from independent living to assisted living or memory care through the second quarter of 2015. Since conversion, these communities have achieved revenue growth of 21.2% and NOI growth of 18.6% and the lease up of our recently opened conversions has been excellent.

An additional 209 units had been completed since the second quarter of 2015 and these communities are currently 90% occupied.

In fact adding the recently opened additions at the three communities currently added our non-GAAP statistical and financial measures for all of our communities during the fourth quarter resulted in a 20 basis points increase in occupancy compared to the third quarter.

The senior housing market offers attractive long-term fundamentals including supportive population and demographic trends, a highly fragmented industry and a constructive operating environment. Senior housing occupancy levels are stabilizing across the United States.

Senior housing rent growth is at a seven year high and the industry will benefit from a material reduction in senior housing construction starts, which had slowed to a weakest pace since 2012. Capital Senior Living is well positioned at the intersection of these industry trends.

With that said, our positioning extends beyond just the senior housing industry. Given the pure-play private-pay nature of our business model, we are in many respects supported by the same industry wide drivers and impact the multifamily and lodging sectors, while historically providing investors with higher returns.

In fact over the past 1, 3, 5 and 10 year periods, senior housing has yielded greater than a 50% higher investment return than lodging or multifamily. While competition is a factor in any healthy industry, we benefit from a concentrated portfolio that is geographically situated outside the top MSAs with the highest level of construction activity.

In fact more than 99% of our portfolio is situated in MSAs with limited new construction and in the one market where we operate within the top 10 highest construction markets, our average occupancy is 94%, as our average monthly rents are significantly below those of newly constructed communities.

Furthermore we operate in markets with high barriers to entry. When comparing our average rates in many of our local markets versus the cost per unit of new builds, it's clear that any new entrant in our core markets will be challenged to generate a sufficient return on investment to justify creating any new supply.

Our differentiated strategy of providing only affordable high quality senior housing and not healthcare ancillary services enhances our competitive advantages as our monthly average rents are approximately 60% of the average cost of living at home with the additional cost of home healthcare and recent studies show that the cost of home healthcare is rising more rapidly than the cost of seniors housing.

As Carey will discuss, we are not facing the same wage and expense pressures impacting Brookdale, home health and other healthcare companies and our private pay strategy insulates us from government reimbursement risk.

With strong industry fundamentals and improving economy and limited exposure to new supply we see a large runway of growth opportunity ahead of us as we execute on our plan. Turning to the transactions we announced in our press release, we recently completed the acquisition of one senior housing community for a combined purchase price of $29 million.

We expect this transaction to be minimally accretive resulting in approximately $1.1 million of increased annual cash flow from operations and increased revenue of approximately $6.4 million. This acquisition will also increase our geographic footprint expanding our operations in Ohio.

In addition, in January we completed a transaction with Ventas in which we acquired four communities that we previously leased for a total purchase price of $85 million. This transaction increases our owned communities and we’re having discussions with other landlords that might further their strategic goal.

Importantly, this transaction will result in incremental CFFO of approximately $2 million and provides us the flexibility to reposition communities and pursue accretive capital expenditures, while eliminating expensive leases with minimum 3% annual rent escalators, which ultimately means that we will generate more sustainable cash flow, maximize our real estate value and create a stronger margin profile.

We are currently working on conversions of 169 units and renovations at three of these communities that are expected to be completed in the first half of 2017. When stabilized we project that these conversions will contribute an additional $3 million in CFFO.

Touching briefly on capital allocation, each of the key strategies we discussed, create value through either organic or accretive growth in margin enhancement.

The acquisitions and conversions we described will contribute to enhance cash flow and by strategically allocating capital back into our owned real estate will improve revenue growth for years to come.

Importantly this means funding growth without raising equity or accessing the capital markets and we are confident that our disciplined approach will create the most value for our shareholders over the long term.

In conclusion we remain focused on our growth plan to maximize financial flexibility through portfolio ownership, improving profitability through margin enhancement and improving the cash flow generation of our existing portfolio.

As we continue to evaluate strategy opportunities and invest back into the business, we are creating a solid foundation for long-term growth and value creation. It is my pleasure now to introduce Carey Hendrickson our Chief Financial Officer to review our company's financial results for the fourth quarter and full year of 2016.

Carey Hendrickson Thank you, Larry and good afternoon everyone. Hopefully you have had a chance to review today's press release. If not, it's available on our website at capitalsenior.com. And as always, you can also sign-up on our website to receive future press releases by email if you'd like to do so.

The company reported total consolidated revenue $115.8 million for the fourth quarter of 2016. This was an increase of $8.3 million or 7.7% over the fourth quarter of 2015. The increase in revenue is largely due to the acquisition of nine communities during or since the fourth quarter of 2015.

Attrition which was unusually high in the third quarter of 2016 returned to more normal levels in the fourth quarter as Larry noted. For full year 2016, total consolidated revenue was $447.4 million, an increase of 8.6% over full year 2015.

And our revenue for consolidated communities, excluding the three communities undergoing repositioning, lease-up or significant renovation and conversion increased 7.9% in the fourth quarter of 2016 as compared to the fourth quarter of 2015.

For full year 2016, revenue for consolidated communities, excluding these three increased 9% to $429.7 million. Our operating expenses increased $6.7 million in the fourth quarter of 2016 to $71.8 million, due again primarily to the acquisitions.

Our general and administrative expenses for the fourth quarter of 2016 were $6.7 million, which includes approximately $1.1 million in onetime cost associated with the passing of our former Chief Operating Officer, Keith Johannessen.

Excluding transaction cost and these costs associated with our former COO, from the fourth quarters of 2016 and 2015, our G&A expense increased $600,000 over the fourth quarter of 2015.

On the same basis, G&A expenses as a percentage of revenue under management were 4.1% in the fourth quarter of 2016, as compared to 4.3% in the fourth quarter of 2015. For full year 2016, G&A was 4.4% of revenue under management, as compared to 4.6% for full year 2015.

Our healthcare claims, which we noted were unusually high in the third quarter of 2016 and resulted in an unusual increase in our third quarter G&A, also returned to more normal level in the fourth quarter.

Our healthcare claims net of employee benefit income was a credit of $300,000 in the fourth quarter, so almost flat, compared to an increase of $782,000 in the third quarter. For the full year, our net healthcare claims expense was $700,000, all of which was related to the $782,000 expense that we had in the third quarter.

For the three other quarters combined and our net healthcare expense was a credit of approximately $75,000. We had unusually good expense in net healthcare claims in 2015 which resulted in a credit of $1.1 million for full year 2015.

So the change in net healthcare expense year-over-year ‘16 over ‘15 was $1.8 million, which explains all of the $1.5 million increase for the full year and our total G&A after excluding transaction and conversion cost.

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

Our adjusted EBITDAR was $38.6 million in the fourth quarter of 2016, an increase of $400,000 million from the fourth quarter of 2015. This does not include EBITDAR of $700,000 related to the three communities undergoing repositioning, lease-up or significant renovation and conversion.

For full year 2016 adjusted EBITDAR increased $8.5 million to $152.9 million, which again does not include $3.2 million EBITDAR associated with the three excluded communities. Our adjusted CFFO was $12.2 million in the fourth quarter of 2016.

The contribution to CFFO from communities acquired during or since the fourth quarter of last year was $1.5 million. For full year 2016 our adjusted CFFO was $48.3 million. Same community revenue increased $700,000 million or 0.6% over the fourth quarter of the prior year.

Our same community expenses remain very well under control in the fourth quarter, increasing only 1.6% versus the fourth quarter of last year excluding conversion cost in both periods. Our same community net operating income decreased 0.7% in the fourth quarter of 2016 as compared to the fourth quarter of 2015.

As we’ve noted in previous quarters, we’re not experiencing wage pressures that broke down with our multiple ancillary businesses and healthcare companies are experiencing.

We are focused on executing a long-term sustainable growth strategy with a focus on real estate ownership as the leading pure-play, private-pay, senior housing owner operator, we are not a healthcare company. As a result our labor cost including benefits increased only 2.1% in the fourth quarter.

And our two other major expenses categories, food cost decreased 3.8% in the fourth quarter versus last year and utilities cost increased 3.3%. For the full year of 2016 our same community revenue increased 1.6% and our same community expenses increased 1.7% resulting in same community NOI growth of 1.4%.

And for the full year labor cost increased only 1.9%, food cost down 0.3% and utilities down 1.4%. Our same community occupancy was 88.5% in the fourth quarter of 2016, a decrease of 10 basis points from the third quarter and a decrease of 60 basis points from the fourth quarter of 2015.

Our same community average monthly rent was up 1.3% versus the fourth quarter of 2015. Average monthly rent for our consolidated communities increased 2.2% versus the fourth quarter of 2015. Looking briefly at the balance sheet, we ended the quarter with $47.3 million of cash and cash equivalents including restricted cash.

During the fourth quarter we received $15.6 million in net cash proceeds related to supplemental loans for four communities and we spent $15.1 million on capital expenditures. We received reimbursements totaling $1.7 million for capital improvement for our leased communities and expect to receive additional reimbursements as projects are completed.

For the full year we invested $62.4 million in capital expenditures related to repositioning, refurbishing and renovating communities across our portfolio and we expect to begin realizing the benefits of these investments in the second half of this year.

Our mortgage debt balance at December 31, 2016, was $907.2 million at a weighted average interest rate of approximately 4.6%. At December 31, all of our debt was at fixed interest rate except for one bridge loan that totaled $11.7 million. The average duration of our debt is approximately eight years with 99% of our debt maturing in 2021 and after.

As noted in the release and as Larry noted also, we closed on one acquisition totaling approximately $29 million in early November which brought our total acquisitions for 2016 to $138.4 million.

Subsequent to year end 2016, on January 31, we closed on the acquisition of four additional communities that we previously leased for total purchase price of approximately $85 million.

The purchase of these four leased communities is consistent with our real-estate focus strategy and will increase the annual CFFO contribution of these communities to the company by approximately $2 million.

It will also free us from annual rent escalations, will significantly increase our flexibility related to these real-estate assets, increases our percentage of owned real-estate assets and increases our real-estate and shareholder value.

Looking forward, the first quarter of the year is always most challenging with high utilities and another winter related cost and is generally the most challenging quarter for an occupancy stand point as well.

The first quarter of any year, traffic of potential residence visiting our communities is generally lower and attrition is expected to be higher. In January and February attrition is been elevated above what could be considered a normal higher first quarter attrition levels due to a more sever flu than normal.

Also we had weather related damage due to cold weather events in late December and early January that resulted in 83 units being out of service across 15 communities for three weeks or more in January and February.

Sequentially, the first quarter will benefit from one additional month of results related to our fourth quarter acquisition and two months of results related to the acquisition we closed at the end of January. Also while it could even out over the course of first quarter, our net healthcare claims expenses returned to a higher level in January.

Taking all these things into account we currently believe our first quarter CFFO will be in a range of approximately $9.75 million to $10.75 million depending on our experience related to our three primary non-controllable factors, attrition, weather and healthcare claims.

As we think about 2017 and beyond, we expect the continued execution of our strategic business plan to produce outstanding growth in all of our key metrics, particularly as we look to the second half of 2017 and into 2018.

We expect our core growth to be enhanced by the significant renovations and refurbishments we’ve made and are continuing to make across our portfolio.

And the impact of the return of 776 units currently out of service due to conversions, repositioning will be even greater particularly as our two large repositioning communities are completed this year and added back to our non-GAAP results after stabilization in 2018, one most likely in the middle of 2018 and the other toward the end of 2018.

In 2017, we’ll benefit from the return of approximately 139 units that had been out of service, with the lease-up of these units beginning primarily in the second half of year. And we expect to add back one community with 186 units that’s been excluded from our non-GAAP results and the first half of 2017.

As a leased community it will have a greater impact on revenue and EBITDAR than on CFFO. When all of these 776 units are leased up and stabilized, we currently expect them to contribute incremental revenue of approximately $32 million and CFFO of approximately $7.5 million on an annual basis.

We do start 2017 at a lower level of occupancy than we started 2016, mostly due to the unusually high attrition we experienced in the third quarter of 2016. Also, we will have approximately $1.6 million in additional interest expense in 2017 related to supplemental loans completed during 2016.

The proceeds of which were invested in repositioning, refurbishing and renovating our communities and again we expect to see the benefit of these investments in the second half of this year and beyond.

In 2017, we will benefit from a full year of the acquisitions that we completed during 2016 and will receive 11 months of benefit from the January 2017 purchase of the four previously leased communities.

In addition we have a robust acquisition pipeline that will allow us to continue to acquire high quality senior housing communities in our geographically concentrated regions.

We believe the successful execution of our clear and differentiated real estate strategy will result in outstanding growth in our key metrics over time and positions us well to create long term shareholder value as a larger company with scale, competitive advantages and substantially our private-pay business model in a highly fragmented industry that benefits from long term demographics, need driven demand, limited competitive new supplier in our local markets, a strong housing market and a growing economy.

That includes our formal remarks and we would like to now open the call for questions..

[Operator Instructions] We take our first question from Chad Vanacore with Stifel..

Hi good evening, Larry and Carey..

Hey Chad..

Hey Chad..

So just figuring our Carey, you mentioned you had added some in first quarter which looks weaker than we expected.

How much of that drag if from occupancy versus how much of it is from expenses?.

Well there are few factors, one is we have got - you always have higher utility cost in the first quarter of the year then you would have in the fourth quarter sequentially think about the fourth quarter, the first quarter it’s usually about $600,000 or so higher in the first quarter than in the fourth.

Our G&A expense, that’s going to depend on the increase there, it probably is going to be somewhere around $600,000 to $800,000 versus the fourth quarter as well because healthcare expense was benign in the fourth quarter, it has been a little higher, it was higher in January and just kind of projecting that with the full quarter, it could even out, but it could be something like $600,000 and $800,000 higher.

And then we do have the acquisitions that will be added in the first quarter versus the fourth, but the one acquisition that was in November, will probably add about $100,000 of CFFO, the four communities that we purchased on January 31, that’s about $300,000 of CFFO that we added to the first quarter versus the fourth, so those things are positive.

And then from a base stand point we expect that to be down slightly, depending on the rate of attrition that we have in the first quarter. We noted that there is higher than usual instant of flu. So far in the first quarter, we also have - normally expected attrition to be higher in the first quarter of any year.

So that will impact kind of our base - our same community revenue going forward. Our expenses will be well in our control, I believe other than utility cost increase we always expect in the first quarter. We should be in good shape from an expense stand point.

So really depends on the attrition and the weather as it relates to those base revenues and how that will come in the first quarter of the year..

All right, that’s excellent color. Now, thinking about - you took $15.6 million of loan in fourth quarter.

How do you think about investing that cash, is that going towards CapEx, renovations or acquisitions or something else?.

That was primarily to help us fund the $85 million acquisition that we had on January 31..

Okay and then since you are acquiring some properties from landlords.

Do we think about any further opportunities to buy assets from other landlords?.

Chad as I mentioned in my comments, we are in discussion with other landlords and hopeful that we can grow the ownership of those properties..

All right, thanks Larry. And then just thinking about wage inflation that your peers are seeing which you don’t seem to be experiencing the same.

Why you - that is or do you doing something differently or the geography that you are located it?.

Well, a few factors, I think one is first I noted in my remarks, we are not a healthcare companies, we don’t have same kind of wage pressure that really there was a lot of wage pressure is on health related jobs. So we are not seeing wage pressure related to that and it is the geographies that we are operated in.

We are not in states where there is a lot of pressure on increasing the hourly wage and minimum hourly wage and as we noted before we really don’t have very minimum wage employees. We feel like we compensate them fairly and I think for 2017 I have included in my projection, something like 2.5% increase on labor so little more than we had in 2016.

We have 1.9% increase as I noted for the full year of 2016. So I have included a bit of increase in that in 2017 and I included something like that last year there was well ended up little less than 2%. So we will just see how that turns out, we just - are in a good position as it relates to based on geography and our current situation..

Okay and then just one quick question for me.

Rate increases - that makes you apart, in Q2017 you still seeing around 3% rate increases?.

Yeah, actually in January our rates were up exactly few percent than the prior year. We also have discontinued any incentives that we had used last year. So we are hopeful that we’ll see some improvement on the actual rate increase, but also see the elimination of some short term incentives that we used about a year to those occupants. .

All right, thanks a lot. I will hop in the queue..

Thanks Chad..

Thanks Chad..

We will go next to Joanna Gajuk with Bank of America..

Thank you. Actually on that last comment on the pricing and how you raised around 2% and you discontinued some incentives or you already did so. So the 1% or 1.3% increase of same store basis in Q4 is that - great deceleration from the recent trends. So that was the reflection of some incentives that you were doing towards the end of the year..

Yeah, there were incentives during the end of the year, where we give off typically some amount of first two months rents, that were off into the first quarter and it is not being continued. So that did have an impact on fourth quarter.

We think it was helpful to build occupancy back up from the high attrition we experienced in the third quarter and fortunately that has not reoccurred and we are very pleased with type of these rates that typically have novelized. Because of the flu which we think temporary escalates to this period of time.

And then so as I looked forward and as I said we are actually of 3.1% in January, actual rate increase and I think that’s a function of rent increases were getting plus, the burning lot of some of those concessions..

So but a little bit of bigger picture, in terms of the CFFO for the quarter, churn rate maybe came a little better than expected but seems the occupancy was down actually sequentially quarter-over-quarter.

So would you characterize that it was - sort of the better CFFO was on the better cost control?.

Well, it was a return to normal attrition Joanna as well as healthcare claims expense. Both of those will be returning to more normal levels to help that..

We actually projected a further reduction in occupancy where we guided last quarter. So it was actually a better performance that when we guided and obviously the normalization of our healthcare claims as Carey mentioned was about some hundred thousand dollars or so..

So then for sort of 2017, how should we think about pricing for the year and also occupancy, I know you suggested that you have a lower starting point because of the attrition in Q3 that flows through and also I guess the start of the year, January, February impacted by the flu but how should we think about those into occupancy for the year and similarly in terms of pricing.

So you said you have raised 2% but I guess there is some seasonality and maybe some seasonality in terms of 7% things like that.

So should we think about 3% kind of average for the year also any color you can give us kind of longer or rather outlook for the year?.

So Joanna, I would expect, we having our projects about 3% rate increases for the year. We do build in some occupancy increase from there.

I think where we end up at the end of first quarter we would expect to be able to grow occupancy from that point of about 100 basis point through their rest of the remainder of the year and so that will give you that plus, conversions that are being coming in as I noted.

So we expect that revenue on a same community basis to be greater than 3% because of the occupancy increase as well as the units coming back in plus the 3% rate increase and then our expenses probably somewhere around 2.5% range, somewhere around there for the year..

So you are saying in terms of the labor - last note on the expense 2.5% so you are saying that you kind of model the labor cost growth similar to what you are experiencing 2016, correct?.

Yeah, labor, up somewhere around 2.5%, we would say in 2017 and then overall total expenses about 2.5%..

Great and if you may just I would squeeze one last question with comment around buying back the four leased assets that were eliminated 3% escalator, so what is your weighted average rent escalators for the remaining portfolio or the leased portfolio?.

Typically 3%, CPI with a floor of 3, so obviously we have been growing rent at 3%. There is a possibility with higher inflation over next five years or so, that could grow more. But the minimum rent escalator is 3%..

All right thank you, I will go back to the queue. Thanks so much..

Thank you..

[Operator Instruction] We will go next to Ryan Halsted with Wells Fargo Securities..

Hi. Good evening..

Good evening, Ryan..

Just want to go back to the occupancy point, so I know you have been very confident that new supply not impacting your markets.

But just given that your occupancy has moved pretty largely in line with our broader market I just wondering what gives you kind of confidence that you know new supply has not as much of a threat and that you think you would be able to see some occupancy gains sort of ahead of what the broader market is looking at for 2017?.

First of all when you look at the new slide that we just filed, we updated the slide as I mentioned if you look at the fourth quarter NIC MAP and look tenth highest concentration of construction, only in one market and we tracked this pretty regularly and there is a map that actually shows off communities compared to the industry and really is very little supply going in.

I speak a lot about of $3500, month rent to start to support the cost of new supply. The other thing that I would comment over and I say commented earlier, it was very clear. It was very clear last month we attended meetings that everyone saying that they are construction lending is way down before new supply for construction.

NIC MAP in fourth quarter showed starts were downs, so lowest level since 2012. So I do think that from the broader industry perspective we are seeing a tapering offer supply in general and just has not been an issue. Unfortunately we had higher attrition in the third quarter which we are recovering.

We are not seeing and the other thing that we do see is outstanding response to the conversions and renovations of our building. Other properties that we brought back from Ventas we have one building in Arizona where there is no new supply.

We have started moving on January for 21 new units memory care and we already have 16 residents and of the 12 older units which we are refurbishing right now we got deposits.

So we have seen tremendous after one month, we had 21 units opened in memory care in Kent in Ohio, that is one of the properties out of our numbers, few quarters ago that’s 100 occupied. So if you look at units and former in October 100% occupied. Buffalo New York, 66 units have conversion where they have 80% occupied already.

So we are just seeing around the country this type of growth. So we just don’t think that we are going to see some of the same pressure and hopefully the entire industry will start to benefit from lower starts, later part of 2017 and into 2018..

Okay that’s helpful.

And then past couple of years you have certainly had a very robust deal pipeline and so I am just wondering what do you think you capacity is for acquisition spend in 2017 and maybe while your discussion kind of uses of capital what is your expectations for other CapEx in 2017 as well?.

I’ll let Carey to CapEx project, again we spent a lot of money last two years both our sales and with our landlords on some of the renovations, that will be tapering down this year.

We already closed $85 million acquisition in January, we kind of think that pipeline is actually terrific right now, but we are probably looking at another $100 million of acquisitions for the year.

Last year we got 138 so we think about allocation of capital and then CapEx Carey you may want to talk about the level which we are at least two years and what we are projecting now for 2017..

Right, so in 2015 and 2016 it has been elevated from CapEx standpoint, as we completed these important renovations, refurbishments, conversions.

We had those going on and in 2016 we spent a gross amount of $62.4 million and some of those expenditures are leased properties and we will reimburse by resource for those about $7.5 million where reimbursed the net on communities that CSL owned communities was about $55 million in 2016 and it was in the $40 million to $45 million range in 2015.

In ‘17, that should tapper off considerably. Right now, we expect CapEx to be somewhere around $20 million to $25 million in 2017 exclusive of projects for which we have been reimbursed by our REIT partners which that could add about $3 million to $5 million.

The gross might be somewhere around between $20 million and $30 million, the net being around $20 million to $25 million..

That’s helpful and then you filed the mix shelf, what’s your view of accessing the capital markets to I guess finance some of these projects?.

As I mentioned, we have no current plans.

That shelf which is the shelf that was filed three years ago and the shelf three years before that and shelf three years since, that expired and we just reduced the shelf, we had never used it, but again it’s just having that tool in our optional to the opportunity there that we have the access to capital, but that was only a function of the exploration of the prior shelf and the ordinary renewal in the same term, same amount for the current shelf..

Okay, maybe just last one for me. Your largest competitor was speculated to be approached by a strategic buyer, just wondering if you guys have been approached or if you’re seeing more strategic buyers or more private equity buyers in the space looking at putting money to work in the industry..

Yeah, we really don’t see a lot of that. Yeah, if you look at kind of the transactions, obviously Blackstone has announced a joint venture with the HCP portfolio with Brookdale. They’re all some of the acquisitions we look at. There are some smaller private equity investors we really had not seen.

There are some Chinese investors that made some investments in the sector. Obviously, two or three - I mean PBG is very active, they brought more profile portfolios, so there’s always private equity in real estate, but nothing unusual, I don’t believe that we’re seeing out there..

Thanks for taking my questions..

Thank you..

We’ll go next to Dana Hambly with Stephens..

Hey, thanks. This is Jacob Johnson on for Dana. I guess first question is sticking with occupancy, your occupancy results seem to be a bit bifurcated between the owned and the leased portfolio.

It looked like the owned ticked up about 40 bps sequentially and the leased declined 50 bps, is this just year mix or is there something to call out there?.

Yeah, I think actually interesting, we have more independent living in the leased versus the owned and unusually the independent living occupancy, actually attrition is higher in the fourth quarter than assisted living.

If you look at metrics, assisted living attrition fell 9 percentage points in the fourth quarter from the third quarter and down from the year before by 1%, independent living was up 3%.

So it was just a portion of higher attrition for the quarter, where we actually had a loss in occupancy in independent into the quarter and a gain in independent living. So that’s really - and the difference being that the leased portfolio has more independent living than the owned is the reason for the change in occupancy..

Got it that’s interesting.

Second question, how do you guys rank purchasing previously leased assets versus the acquisition of a new facility?.

Great question, every dollar that we invest, we do an investment analysis looking at the return and looking at all the opportunity costs, whether it be in acquisition, whether it be a refurbishment, renovation, obviously we think that owning the real estate reduces leverage, it brings down recourse leases, it reduces the escalators over decade, so you got to take that into account.

And the bottom line is that it gives a tremendous ability to increase the sustainable cash flow after lease burden and creating shareholder value for the ownership of the real estate and real estate value.

I mentioned before purchased that from Ventas and gave you some stats on one of the conversions that just opened up in Arizona, the other properties would be done next quarter. If we raise as we project $3 million of cash flow, will increase the value of those real estate properties that we now own by $40 million.

We prefer to do that for our shareholders and our landlords.

So we just look at this as a strategy that is improving the balance sheet, reducing leverage and reducing those minimum escalators which could increase even greater in higher inflationary periods and gives us maximum flexibility of owning real estate that has a potential of really driving significant cash flow benefits like $5 million on the $85 million purchase and then the real estate value that goes along with that hopefully would also drive shareholder value..

Alright and then last one from me, Larry there’s been a lot of talk recently regarding senior housing’s role in the post that you continue, just would be interested in your thoughts on that.

And have you guys had discussions with payers or health systems or is it still pretty early?.

Jacob, great question. I had a meeting this morning on that exact topic. I think there’s a tremendous opportunity there. I think it’s something that the industry has laid behind. I’m hopeful that we will take a leadership position in looking at how we can - I mentioned something on the call.

Again, the cost of living at one of our buildings and average rent of $3,535 is 60% less than the cost of homecare. If you compare it to the cost, still nourishing a 432 a day, hospital 1,800 a day, it’s significant.

The opportunity for this industry to participate in this continuum as a setting that has better outcomes at lower cost is very, very dramatic. The challenge is getting the data because we’re private-pay and don’t deal with CMS, we don’t have the same data that post-acute providers have.

We also have a strategy that we really speak about of partnering with the premiere post-acute care providers who reside in our buildings like Genesis, home healthcare companies, hospice companies.

We just had a meeting today with our quality assurance committee, where we review a modified broad shelf index [ph], which is the index that Genesis provides for our residents, in our communities that measures independence. And in the capital senior living communities is the highest measurement of all of Genesis’ therapy rehab around the country.

So we’re working on gathering the data, we’re talking - having great conversations on that, actually if I said, just sequentially spent this morning on that exact conversation and thinking of this as an opportunity that we definitely want to plan. It will take some time and above.

There are hospital systems that are very focused on senior living right now, they’re looking at. So I do think there’s a great role and I’ll tell you Jacob, that’s a holy grill because we’re successful and the industry is successful.

All we have to do is increase the penetration rate of this industry by one percentage point and if we do that, there will not be a vacant apartment in the entire United States. .

Great, that’s it from me. Thanks..

Thank you..

There are no further questions in the queue. I would like to turn the conference back over to Mr. Larry Cohen for any additional or closing remarks..

Well, again I thank everybody for participating today. Please feel free to contact Carey or myself, if you have any further questions. We wish you good evening and hope to see you soon. Thank you very much. Have a good night..

Again, that does conclude today's presentation. Thank you for your participation..