Brookdale Senior Living Inc. (BKD) Q1 2015 Earnings Report, Transcript and Summary

Good morning. My name is Robin and I will be your conference operator today. At this time, I would like to welcome everyone to the Brookdale Senior Living first quarter earnings call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions]. Thank you. Mr. Ross Roadman, you may begin your conference.

Thank you, Robin and good morning, everyone. I would like to add my welcome to all of you for the first quarter 2015 earnings call for Brookdale Senior Living. Joining us today are Andy Smith, our Chief Executive Officer and Mark Ohlendorf, our President and Chief Financial Officer. I would like to point out that all statements today, which are not historical facts, may be deemed to be forward-looking statements within the meaning of the Federal Securities Laws. Actual results may differ materially from the estimates or expectations expressed in those statements. Certain of the factors that could cause actual results to differ materially from Brookdale Senior Living's expectations are detailed in the earnings release we issued yesterday and in the reports we file with the SEC from time to time. I direct you to Brookdale Senior Living's earnings release for the full Safe Harbor statement. With that, I would like to turn the call over to Andy Smith. Andy?

Good morning and thank you for being with us. Let me begin this morning by saying we are pleased with our accomplishments so far this year. Our first quarter results were in line with our internal expectations and our financial guidance for the full year. With regard to Emeritus, we have made solid progress towards becoming a fully integrated company and we continue to pursue innovative new products and services across what is already the country's broadest senior living platform to deepen our relationships with and to do more for our customers. While Mark will go into more detail about the financial results for the quarter, I want to point out a few items. Our first quarter adjusted CFFO was $0.63 per share. This represents a $0.10 per share increase over the fourth quarter of last year. Nearly all of this increase resulted from operational improvements and the absence of insurance reserve adjustments that we experienced in Q4. We grew adjusted EBITDA by 8.4% from the fourth quarter of 2014. And resident fees grew by $10 million with very good rate growth. We had strong rate growth in the legacy Brookdale portfolio and we showed nicely improving rate performance in the legacy Emeritus portfolio. The integration of Brookdale and Emeritus is progressing. I am pleased to report that we saw more normalized sales activity in the first quarter. For our combined operations, we produced 500 more move-ins than we did in the fourth quarter of 2014 and almost 300 more move-ins than in the first quarter of 2014. This was in spite of difficult weather in a number of geographies and a number of flu related closures. We also saw better lead activity and a more normalized conversion rate. Our occupancy was however negatively impacted by a spike in move-outs, nearly all of which resulted from a higher than normal death rate, which we attribute to the severity of the flu season. We are just beginning to see expected synergies in G&A and in our operating expenses. The Seattle office transition is on schedule and we are beginning to realize the expected cost synergies and supply procurement and other operating costs such as benefit costs. We have begun the process of rolling out our ancillary services platform into the former Emeritus portfolio. At this point, we are already serving over 120 former Emeritus communities. The integration of the Nurse on Call home health business into Brookdale Healthcare Services is also proceeding according to plan, both from a systems and a service offering perspective. And we have begun the process of expanding our outside the walls home health services into several new markets. We are working diligently on the physical plant improvements in the former Emeritus portfolio as well. We have completed or initiated a large number of projects and we are on track to achieve our goal of renovating 150 Emeritus communities this year. As a sidebar, we are also working closely with HCP on EBITDA enhancing projects for selected joint venture communities where we believe there is also good upside from enhancing the physical plant. Finally, we continued to experience minimal turnover of management leadership and have retain 94% of management and support staff above the community level through the end of the first quarter. We are grateful for everyone's hard work and ongoing commitment to accomplish this large integration. As we recently announced, we have continued to make progress on our ongoing efforts to evolve our Board and our corporate governance. We are excited to welcome Mark Parrell and Lee Wielansky to our Board of Directors. Together with Bill Petty who joined our Board in December, these new directors augment the diverse skill set of our Board members. The participation of these three new directors will enhance the Board's support of the management team in refining and executing the company's strategy to create shareholder value. In particular, the company will benefit from their expertise as we continue to evaluate our significant real estate portfolio. I would like to thank Mark Schulte and Sam Waxman for their invaluable contributions over many years to the success of building Brookdale into the company it is today. Before I turn the call over to Mark, let me close by saying that we remain on track with our original three-year plan regarding the Emeritus merger. We continue to be excited about the great potential inherent in our large platform beyond simply combining the two companies. Internally, we see a number of opportunities to improve our operational effectiveness including improvements to our pricing methodologies and the creation of a maker market management process that eases the path to purchase for our customers. There are also significant opportunities to make technological investments into state-of-the-art tools to drive improved economics and enhanced customer experience. With the resources inherent with our size and scale, we have already begun to explore putting into place the next generation of processes, tools and technology. Externally, we are already working on exciting new scalable pilot projects that reach our current customers in new ways or bring services to new markets and new customers. To be clear, we are laser focused on the integration in 2015, however by accelerating our integration activities, we are positioning the company to be able to pursue sooner the significant opportunities that lie ahead. Now here is Mark to review our financial results in more detail.

As Andy said, we produced first quarter results in line with our internal expectations highlighted by increased admissions and the continuation of favorable rate growth trends. CFFO was $115.4 million, a 46% increase from the prior year and adjusted EBITDA was $230.7 million, an 89% increase from the first quarter of 2014. These headline numbers are obviously impacted by the closing of the Emeritus merger on July 31 of last year. During the first quarter, we saw continued pricing strength. Looking at the senior living same community rate growth, the combined portfolio experienced a 3.3% year-over-year increase, up from the fourth quarter 2014 year-over-year rate growth of 2.5%. The Brookdale portfolio experienced a 4.3% year-over-year increase in senior living revenue per unit. For the Emeritus portfolio, we have seen an improvement in same community year-over-year rate growth from roughly 100 basis points in Q3 and 90 basis points in Q4 of last year to 200 basis points in Q1. Our combined average occupancy declined sequentially by 90 basis points from the fourth quarter of 2014. For the legacy Brookdale portfolio, the sequential quarterly occupancy change was a decline of 60 basis points and for the legacy Emeritus portfolio, the sequential quarterly change was a 100 basis point occupancy decline. As Andy mentioned, combined admissions were actually up 3.2% from the first quarter of 2014, even with some difficult weather in certain geography. Admissions also increased by 6.2% from the fourth quarter. Stabilization of sales process evidenced itself as admissions were up 2% in the Brookdale portfolio versus the fourth quarter of 2014 and were also up modestly in the Emeritus portfolio over the same period. But we saw a significant uptick in move-outs in both portfolios. We experienced a higher mortality rate for the first quarter than we have seen in the first quarter of 2013 or 2014, which we ascribe to a more severe flu season, leading to a 4.2% increase in move-outs over the first quarter of 2014. Reflecting the flu severity, more than 130 of our communities experienced some flu related admission disruption aggregating to almost 1,200 days that communities were closed the new admissions during the first quarter. While it's difficult and expected for the first quarter occupancy to be seasonally weak, the normal occupancy seasonality for Q1 was exacerbated by the weather and the more severe flu season's impact on move-outs. As we just experienced, Q1 is normally down sequentially and the second quarter is often down to flat before we hit the occupancy building second half of the year. Historically, our occupancy growth turns positive in May or even as late as June before we begin to see the gains in the second half. April did show the number of move-outs normalize, but our net change in occupancy was negative for the month. Continuing on with our pro forma same community data for the senior housing portfolio for the first quarter of 2015 compared to the first quarter of 2014. Our consolidated pro forma senior housing same communities produced a 1.5% increase in revenue due to a 3.3% increase in revenue per unit and a 150 basis point decline in occupancy. At the same time, expenses increased 1.4% with the operating margin rising by 1.8% to 34.9%. The legacy Brookdale same-store expenses were up 4.1% as a result of increased marketing spend, labor cost growth above inflation, though better than the fourth quarter and weather-related cost. The legacy emeritus same-store expenses declined by 1.8% as a result of cost synergies and the impact of accounting conformity. Our ancillary services business produced $115.4 million of revenue, an 82% increase from the first quarter of 2014, again impacted by the closing of the Emeritus merger last July. We experienced an increase in home health census due to the rollout to the Emeritus communities and inclusion of Nurse on Call combined with increased hospice volume somewhat offset by a decrease in outpatient therapy volume. All of the ancillary services business is now on the same financial system and we are currently rolling out our EMR system within Nurse on Call as well. While now part of a 51% owned joint venture with HCP, the independent living entry fee sales had an excellent quarter in what is typically the lowest sales quarter of year. The entry fee joint venture portfolio produced $14.1 million of net entry fee cash flow on 142 sales in the quarter, which was the highest for the first quarter in several years. Of course, the impact of the net entry fee cash flow comes through CFFO from unconsolidated joint ventures which, again, we now include in our adjusted EBITDA calculation. For the entry fee communities and the consolidated portfolio, net entry fee cash flow was $1.7 million, also a very good first quarter. General and administrative expense was $84.2 million for the first quarter of 2015. Included in G&A cost was non-cash stock-based compensation expense of $8.9 million and integration related and EMR rollout cost of $20.6 million. Of course, the vast majority of that latter expense related to the ongoing Emeritus integration process. General and administrative expense, excluding these items, was $54.8 million. Given a number of open positions that we are expected to fill as well as the transition of resources back from integration activities, we expect our run rate to approximate closer to $60 million a quarter for the rest of the year. Our Program Max activity includes 17 projects under construction and 17 more in active development, altogether representing almost 500 new units and includes seven projects at former Emeritus communities. I want to close by giving a brief update on our progress regarding the integration of Emeritus. We expect the fourth and final wave of systems cutovers to be completed through late summer, though the overall integration will continue through the balance of the year. This wave four work is now in progress. It includes conversion to the Brookdale care assessment system, which enables improved resident care planning, labor scheduling and conform pricing. Also included are the transition to the Brookdale risk management tools and dementia care programs. To give you a sense of the magnitude of these wave four conversions, almost 91,000 hours of training have taken place so far as associates are undergoing training on these new systems. Once wave four is complete, we will have the former Emeritus communities on to Brookdale infrastructure and technology platform and we can manage the business more uniformly across the entire system. As Andy said, the first quarter was the start of the year we expected. As a result, we are affirming our full year CFFO guidance of $2.60 to $2.75 per share. This guidance does not include any integration transaction related and EMR costs or any unplanned acquisition or disposition activity. We will now turn the call back to the operator to begin the question-and-answer session. Operator?

[Operator Instructions]. Your first question is from Joanne Gajuk from Bank of America.

Thanks for taking the question here. So can we just talk a little bit more about occupancy trends? I realize the weather impact and flu, but why we are seeing still the legacy Brookdale portfolio being impacted as much as it did? So is there any way you can quantify the weather actual versus some other headwinds there?

Joanne, this is Andy and good morning. Thanks for the question. As we have said previously, when you think about occupancy, you have to take into account the fact that we had aberrational activity at the end of last year. So our starting point going into this year was lower than what we would have normally experienced. Now I would underscore the fact that we saw good move-in activity, in fact better than the fourth quarter of last year and better than the first quarter of last year as well. It was simply offset by higher mortality rates and weather related headwinds. But our customary experience in past years, you are normally going to see in the first quarter something like 40, 50, 60 basis points decline. That's completely customary and is perfectly typical for our portfolio. So that's how we think about occupancy.

All right. And then in terms of the strength in pricing, especially in the Emeritus portfolio, how it improves, so can you talk about the drivers there? And on the legacy Brookdale, the 4%, is that sustainable? Is that the level we should be thinking about for of the rest of the year? Thank you.

Joanne, it's Mark. The legacy Brookdale portfolio rate growth has been really trending up now for the last three years or so. I would think we actually include a slide with a graph or investor deck that shows the trend in that. And it's nudged up very gradually. At the end of last year, we were in the upper 3%. We are now just over 4%. Obviously in the Brookdale portfolio, we have been investing very heavily over the last three or four years. And part of what you are seeing there is the consequence of modernizing properties, investing CapEx and like. Now the rate growth in the legacy Emeritus portfolio was not as strong. It was 2% in the first quarter but that is substantially higher than Emeritus or we have seen in the Emeritus portfolio for the last two or three years. So we are beginning to make some steps there. We have started to make CapEx investments in the Emeritus portfolio, but are very early in that process. So I think at this point, the increased pricing there relates more to market management and sales management type activities.

Thank you.

And your next question is from the line of Darren Lehrich from Deutsche Bank.

Thanks. Good morning, everybody. So I guess I wanted to just explore the conversation with you a little bit around attrition and the dynamics you are describing. Obviously, you have got the seasonal elements this first quarter but I wanted to step back a little bit and maybe get your thoughts on how you think the company can manage differentially the higher rates of attrition that might just be coming with the frailer older assisted living resident? And it would helpful maybe if you could talk to some of the things you have seen with the ancillary services and whether that's extended length of stay and can you just maybe give us some numbers or framework in terms of how you have been able to effect improved length of stay from your ancillary business?

Yes. Thanks, Darren. First off, we don't expect this heightened level of move-out activity to continue through the balance of the year. We expect our move-out levels to return towards more like what we saw in 2014. But it's true that in our portfolio and I think it's fair to say in the industry generally, that you are seeing a higher level of acuity in much of the portfolio and in much of the industry. The good news about that is that squares directly with our strategy which is to have as much of the continuum of care either on a campus or in a connected network that allows for us to provide solutions to folks as their acuity levels actually rise. For example, if someone who is in an assisted living community and develops Alzheimer's, then we would be prepared to, as part of our strategy, to have a place where we could serve that heightened degree of acuity. We also have the opportunity to take our Brookdale health services, our ancillary services platform and to provide services to folks to allow them to age in place as opposed to requiring them to move to another setting. So we are doing a lot of activity to deal with that heightened level of acuity, but it fits again with our strategy to have as much of the continuum of care as we can have in one connected network and to be able to serve folks through our ancillary services platform which again we are also in the process of adding new service solutions lines to that business to allow us to address heightened acuity.

That's helpful. And if I could just follow-up with one that is, you started off the call by just saying that the quarter was in line with your internal expectations. But I thought I heard you say that you thought the attrition was maybe a little higher, the seasonality was a little more pronounced. So what were you able to manage differently to get inside of your internal projection if there was little bit higher attrition? And can you just speak to whatever activity you were able to accelerate to get there?

Sure. Our rate performance was modestly better than we would have expected. Certainly the performance in the entry fee joint venture was relatively strong. Our G&A cost were a little bit low where we would have expected. And again, we expect those are going to trend up just modestly as we go through the year this year. The ancillary business, pretty much right on target at this point.

Great. Okay. Thanks, everyone.

Thanks, Darren.

Your next question is from Josh Raskin from Barclays.

Hi, thanks. Good morning. First question, just again on the pricing. I know you guys are relatively broad. It's probably hard to get 4.3% pricing if it's not strong across the board. But where there any geographies or types of properties that stuck out in terms of stronger pricing or better trends in recent quarters?

Thanks. Good morning, Josh. There is nothing to remark upon on geography. It was pretty uniform.

Okay. All right. And then on the Emeritus side, I don't know if you have got any monthly data building, but when do you think you will have a sense of what the reflagging or rebranding will do in terms of rate, but also I guess occupancy as well? Is there any sort of preliminary thoughts on what the rebranding has done?

We are in the process of rolling out the reflagging which we expect to have completed by mid to late summer. There is not enough data right now for us to pinpoint. Although we are looking at it to pinpoint any analytics around. It's just too early to have anything to remark upon there are analytically.

Got you. And then just lastly on the weather. I just want to make sure I understand the impact. I certainly understand that there is probably cancellations and things like that in terms of coming to look at the properties and deciding on whether or not there will be a move-in. But if they assume it's a delay in the move-in, that just sort of comes back, right? So I don't know if there was real significant weather in March that moved things into April. But does that volume come back at times? Or is that just you have permanently shifted demand curve right a month?

Most of the time, if you miss a move-in, you missed that move-in permanently. Not always. I would say that the consequence of the weather in the first quarter, while we had some unusual expenses because of it and some heightened cost burdens because of it, but at the end of the day it delayed folks from making a move and generally speaking, something [indiscernible] figure out another solution.

I am just curious what would that mean? What do you think they are doing if they have come to the conclusion that they have got to move mom or dad into a senior living facility and then the weather's bad that week, what is Plan B usually?

Well, if it's bad for just a week and again, I don't think we are saying to move the weather activity. It simply slowed activity in the first quarter where the geographies were affected. If you have a snowstorm for two or three days, then that's simply a delay. The bigger burden of the weather in the first quarter was really on heightened expansion cost structure matter.

Got you. It makes more sense. All right. That's perfect. Thanks.

Sure.

The next question is from Frank Morgan from RBC Capital Markets.

Good morning. Could you go through the progression within the quarter, maybe talk a little bit about what you saw on the move-in and move-out? And I thought you made a comment maybe at the end of your prepared remarks about what you saw in April in the move-in activity?

Yes. Our occupancy gradually drifted down. We saw good move-in activity in each month January, February and March. But again offset by the spike in move-outs that we talked about. But we saw our occupancy gradually drift down, which is completely common and completely typical through the quarter. In April, we saw the move-out activity began to moderate which would be expected as the flu season is mitigated but we still had a negative net move-in in the month of April.

On the move-out side during the month, what was the worst month of move-out activity? Was it March?

I would have to go back and double checked the data, Frank. I don't know that there is -- it certainly would have been heightened in January. I don't have -- I will have to get that data and get back to you.

Okay. And in terms of the second quarter, I know that has historically been the quarter where you get that inflection where things start to turn and maybe you could remind us historically, either you or Mark remind us, what month do you typically see that inflection to where things flip over and move-ins start to exceed move-outs?

Yes. In an extremely strong year, you would see it happen as early as April. But typical year, probably it's around May. Though it's not unusual for it to be as late as June. It really just depends on the year.

Frank, the move-outs were highest in the month of January, but they remained elevated in February and in March.

Okay. But in April, you are seeing?

We did not see things turn in April, which is not unusual because the overall market environment this year is not one that you would describe as extremely robust.

Okay. And in terms of the rate growth that you saw relative to what Emeritus normally does, it sounds like that was a higher number, was the relatively weaker occupancy in the Emeritus portfolio, would you in any way attribute that to the fact, it sounds like you just were trying to bring rates up to normal resets, could you attribute any of that occupancy weakness to people moving out because of rate growth? Or was it more the weather and the flu and these other things? Is it a similar explanation for Emeritus?

Yes. It's a similar explanation for Emeritus. That's a good question. We did not see any spike in move-outs for levels of financial concerns or dissatisfaction or anything of that type. Those levels of move-outs were within the normal boundaries but it was simply mortality rates in both portfolios that resulted in the spike of move-out activity.

Got you. So it sounds like you have, at some point in the second quarter, you hit this normal inflection point. You will hopefully have the sales force trained under the new systems and in place so that you capture the turn in the third and in the fourth quarter. Is that a fair way of thinking about it?

Yes. That's certainly our expectations. We feel like the sales force is getting to a more normalized situation as they are getting more acclimated to new reporting relationships, better familiarity with our tools and systems. And we feel like once we get the fourth wave of the integration completed, at that point in time we will be able to manage the business in one consolidated and uniform way which we are unable to do right now. But yes, absolutely our expectation is to have the company positioned to take advantage of normal seasonality, which we would occupancy beginning to build in the third quarter and continuing through at least the early part of the fourth quarter of this year.

Okay. Thank you very much.

Thanks, Frank.

And your next question is from Ryan Halsted from Wells Fargo.

Good morning.

Hi, Ryan.

Hi. Just as a follow-up to the last point. So you did talk about the CRM system and the legacy Emeritus sales team. Anything you can share with us on any improvement on how the Emeritus sales force is better capturing leads or anything to give a better sense on how the integration is going?

Well, as I think we said in our prepared remarks, the conversion ratios for leads were more normalized in the first quarter. And that would be true in both the legacy Brookdale as well as the legacy Emeritus portfolios. So we are seeing a greater degree of normalization in the Emeritus portfolio. Now look, I am not saying we don't have lots of work to do and we are not where we ultimately expect to be, but we are feeling better about the performance in terms of getting back to normal as folks get their arms around the integration activity that's happening.

Okay. And then on the pricing, so with the fourth wave expected this summer, you did talk about pricing conformity. How should we think about the investments you are making in the legacy Emeritus communities and timing of that relative to the systems integration on when pricing would more conform to your methods?

I would say, again, we raise rents for the in-place assisted living resident base January 1. The Emeritus portfolio was largely assisted living. So the next meaningful effect from in-place rent changes would be next year. So for the balance of this year, it would be changes to street rates or asking rates, if you will. And really until those new assessment of pricing tools are in use for a period of time and until more CapEx is deployed in the portfolio, I would not expect to see a substantial impact there. So I think that would point you towards next year before you are likely to see much meaningful movement there.

Okay. That's helpful. And then lastly for me. On the ancillary services, you mentioned about 120 Emeritus communities are already beginning to offer some of the home care services you are hoping to roll out. I was just curious if that's a function of the systems integration or more a function of the licensing progress and if it's the licensing, any sort of update on the remaining communities and when you expect to get them licensed for the ancillary services? Thanks.

Well, we already have licenses in place to allow us to expand our ancillary services platform to the majority of the Emeritus portfolio. The real driver or I guess the governor on exporting those services into the Emeritus portfolio. It's simply a matter of hiring the professional clinicians, getting organized to actually drive that business out into that platform, but it's really hiring people more than anything that governs the timing of that rollout. Now we do expect the rollout to be completed about mid next year and to the entirety of that portfolio, at least where we have existing licenses and then it takes a while for the program to mature once you have begun to implement it in a particular community.

So as far as licensing, it sounded like you said where you have existing licenses. Is there a process of requiring additional licenses for other types of services?

Yes. Where we have geographical scale and where we do not have a license, we are in the process of trying to acquire those licenses. But that takes time and effort and we are working on that.

Okay. And any sense of the timing? Is it over a year? How long can it take sometimes?

Quite frankly, there are some markets where we are seeking licenses, but the aggregate number there is going to be extremely small compared to the opportunity to just deploy across the Emeritus portfolio in those markets where we already have the licenses.

All right. Great. Thanks for taking my questions.

Sure. Thank you.

And your next question is from Daniel Bernstein from Stifel.

Hi. Good morning.

Good morning, Dan.

Yes. I wanted to go back on the ancillaries. How do you characterize the size of the ancillary market and opportunity, if we just go back over that a little bit? And whether that can all be done organically or do you need to make some additional acquisitions to bulk up the ancillary business?

Which are you talking about? The opportunity in the Emeritus portfolio or more broadly?

I guess, overall. You can dissect it by the Emeritus portfolio, but you are moving outside of the facilities a little bit, you are moving into hospice. How do I think about this in term of putting some numbers and dollars on it? What's that size of that market for you? How big do you think that can get in terms of revenues and earnings relative to the rest of the seniors housing portfolio?

Well, first of all, on the Emeritus opportunity, just to frame one that's pretty mathematical, our merger synergy guidance included $0.12 a share of accretion related to rolling out primarily home health in the Emeritus portfolio. So that's roughly a $125 million a year revenue business, plus or minus. If you look at the residents of our communities broadly, they use roughly $4.5 billion dollars a year of Medicare reimbursed services. And as you know Medicare is 50% or 60% payment source, I think in the senior care markets. So just the residents in our communities is quite a large opportunity. Obviously we are not going to pursue the entire range of healthcare services. For example, we are unlikely we find ourselves in the acute care business, but there is a very broad opportunity for the residents in our communities and then within a fairly short distance of our communities now are more than half the people over 80 in the United States. So there are roughly 6.5 million people over 80 within 10 miles of our communities. Obviously there those same kind of numbers apply because many of them are frail seniors as well. So it is an extremely large opportunity over time.

Okay. And then on the EMR cost, I was just, for modeling purposes, trying to understand how that might progress through the rest of this year. I don't know if you have specific dollars maybe you are thinking about for each quarter. But how should I think about what those cash outlays are going to be?

Again, I don't have the numbers in front of me, but I suspect the pace of integration cost expenditure will be relatively consistent through the year. Now we are deploying EMR in the Nurse on Call home care business that Emeritus had acquired now, as well as in our skilled nursing portfolio. So that is the preponderance of that activity in 2015. At some point we will begin deploying some of these tools in our assisted-living portfolio, both the legacy Brookdale portfolio and the Emeritus portfolio, though I doubt we would see much there until 2016.

Okay. And then I also wanted to go back to some of the questions on the leads and the move-ins. Even if we can go back maybe more on a month, I don't know if you have the data in front of you, a month-to-month basis, even going back to, say, like the fourth quarter, was there a progression where every month you could see move-ins increasing and leads increasing? Or is it more lumpy that it's hard to think of in a linear way like that?

If you went back to the fourth quarter of last year, I think we have previously disclosed that we saw move-out activity in the fourth quarter of last year within normal parameters. We saw move-in activity dramatically drop in November of last year and remain somewhat muted in December of last year and that was particularly acute in the Emeritus portfolio. With respect to lead activity, in the first quarter of this year we saw a return towards normalcy, although there is nothing remarkable between months, that is between January, February and March that bears remarking upon other than we saw the leads be within the normal ranges of what we would anticipate. Move-out activity spiked again, as I said earlier in response by Frank Morgan's question. Move-out activity was elevated, which is quite common in January, but remained elevated in the months of February and March.

Okay. Did you change anything like in terms of compensation for conversions, lead to move-ins? Or was it simply just training that helped the move-in number, you think?

Well, it would typically be the case that conversion rates declined in the first quarter. that's one of the impact of the holidays on the sales pipeline. But I don't think we had anything particularly unusual relating to leads or conversion rates in the first quarter.

Okay. And then, I had one quick question on the Board. How did it come about that you are bringing Mark Parrell and - I forgot the gentleman's name from Acadia? How did it come about? Were you talking to them months ago about coming on the Board? Or was it something very sudden? How did you guys get connected?

Well, first off we are very excited to have both Mark and Lee join our Board. Are you asking about Mark Parrell specifically?

It could be both, but yes, how did you guys meet? Did you know him beforehand years ago? Or is it something more recent that you guys discussed and wanted them on the Board?

Yes. Well, as we have discussed with many of our investors over the past many months, we have been in the process of evolving our Board for well, since Fortress has exited the company. And we were introduced. I did not know Mark Parrell, but we were in conversations with him for quite a long period of time because we found him to be an attractive possibility for joining our Board and his name was given to us or given to me by a number of different people. And that would include some of our large shareholders who recommended to us that Mark would be somebody you ought to talk to. So the conversation with respect to Mark Parrell was ongoing and lengthy. Lee Wielansky, who again we are excited that Lee is joining our Board, he was introduced to us as part of the Sandell process, as I suspect you know. And so we obviously had a conversation with him for a shorter period of time. But we vetted his experience and his track record very vigorously through our nominating and corporate governance committee and are quite happy that he is on the Board with us now. Albeit the fact that our conversations with him have been of shorter duration as we settled the Sandell matter.

Okay. I appreciate the color. I just wanted to understand how that all came about. I will hop off. Thank you.

Okay. Thanks, Dan.

And your next question is from Brian Tanquilut from Jefferies.

Hi. Good morning, guys. First question, Mark, as we think about G&A opportunities, you have had some good success in Q1. How much is left in just like the overall operations on the G&A side and then also specific to Emeritus?

Again we are directing people towards G&A run rate of roughly $60 million a quarter for the balance of this year. Quite frankly, that is our post-synergy run rate that we had projected in the Emeritus underwriting. So we are largely at the level we expect to get to already.

Okay. So you are not projecting any incremental opportunities there, at this point?

Not in the near term. Obviously as the business grows and changes, we are always looking for ways to optimize our cost structure including our overhead, but we are largely, by the end of this year, we are largely where we expect it to get to.

Okay. And then the facility level, outside of pricing changes, is there still low hanging fruit to harvest at the facility level as we think about both the Brookdale and Emeritus facilities in terms of margin expansion opportunities?

Low hanging fruit in a private pay business of this size sounds a bit ambitious probably. We are pursuing some new programs that quite frankly we are really in a position to do now for the first time because of our scale. Those revolve mostly around the kinds of tools you have seen used in multifamily and airlines and hotels around yield management type tools. More systematized methods there. We are early in that process but we are exploring a number of things there. We also have an opportunity to manage inventory and rates on a market basis now in a way that we have never done before. That too is somewhat complex because it involves multiple product types, while at the same time we are deploying CapEx and doing Program Max projects and so forth. But both of those are clearly meaningful opportunities for us, though describing anything as low hanging fruit, again, would be a bit ambitious.

Last question for me. If you don't mind just sharing with us some initial reads on the pilot programs that you are running on selling Medicare Advantage plans and renters' insurance and things like that that you are introducing in your facilities? Thanks.

Thanks, Brian. That's a good question. We are very excited about a number of those projects, but they are early in their gestation and until we get -- although we have some pretty positive beginning results, I don't think we can quantify that until we get deeper into the programs.

Got it. All right. Thanks, guys.

Thanks, Brian.

And at this time, I am showing there are no further questions. I will turn the conference back over to our host. Mr. Ross Roadman, you may begin.

Thank you, Robin. With that, we would like to thank you all for participating this morning. We look forward to seeing some of you next week at the BofA Merrill Lynch conference in Vegas. We will also be in New York the first week of June at the Jefferies conference and then in Los Angeles at the Goldman Sachs conference in the second week of June. So with that, thank you. We will be around if you have follow-up questions. Thank you, everybody.

And this does conclude today's conference. You may now disconnect.