Good day, everyone, and welcome to the Capital Senior Living Third Quarter 2013 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 would like to turn the call over to Mr. Larry Cohen. Please go ahead, sir.

Thank you very much. Good afternoon, and welcome to Capital Senior Living's Third Quarter 2013 Earnings Release Conference Call. I'm very pleased to report positive results for the third quarter as we recovered from the effects of the flu season earlier this year. Same-community occupancies at the end of September improved 70 basis points from the end of June, and same-store average monthly rents increased 2.9% from the third quarter of the prior year. This significant increase, along with a 20% increase in third quarter deposits, bodes well for fourth quarter financial results. I am also pleased to report that the repositioning of our 2 continuing care retirement communities to further enhance our private-pay revenues is proceeding well. After considering a number of alternatives, including a sale of these owned communities, we've decided that a reconfiguration of the services we offer will enhance annual CFFO, improve our operating metrics and enable meaningful gains in shareholder value. The residents we serve in skilled nursing will all have been relocated to other nursing homes by the end of this week, and we will soon begin reconfiguring this space for private-pay use. With the closing of these skilled nursing units, 97% of our revenues are derived from private-pay sources. Complementing our organic growth is a robust pipeline that allows us to continue our disciplined and strategic acquisition program that increases our ownership of high-quality senior living communities in geographically concentrated regions and generates meaningful increases in CFFO, earnings and real estate value. We differentiate Capital Senior Living as the value leader in providing quality seniors housing and care at reasonable prices. We are well positioned to make meaningful gains in shareholder value as a substantially private-pay business in an industry that benefits from need-driven demand, limited new supply and an improving economy and…

Thanks, Larry. Good afternoon. I hope everyone has had a chance to see the press release, which was distributed earlier today. In the next few minutes, I'm going to review and expand upon highlights of our financial results for the third quarter and first 9 months of 2013. A copy of the press release is available on our corporate website at www.capitalsenior.com. And if you would like to receive future press releases by email, there's a place on our website for you to provide your email address. For the third quarter of 2013, the company reported revenue of $88 million compared to revenue of $78 million for the third quarter of 2012, an increase of $10 million or 12.8%. Resident and health care revenue increased from the third quarter of the prior year by $9.8 million or 12.7%. We consolidated 103 communities on our income statement this quarter versus 88 in the third quarter of the prior year. Financial occupancy at the consolidated portfolio averaged 86.4% in the third quarter of 2013, excluding 2 continuing care retirement communities that are being repositioned. Average monthly rent was $3,023 per occupied unit in the third quarter of 2013, an increase of $111 per occupied unit, 3.8% higher than the third quarter of 2012. On a same-community basis, excluding the 2 CCRCs being repositioned, same-community average rents were 2.9% higher than the third quarter of 2012. On a same-community basis, revenues increased 2.4% versus the third quarter of 2012, expenses increased 1.3% and net income grew 3.9%. As a percentage of resident and health care revenue, operating expenses were 61.3% in the third quarter of 2013. General and administrative expenses as a percentage of revenues under management were 5.5% in the third quarter of 2013, excluding transaction costs of approximately $0.4 million in…

[Operator Instructions] And we'll take our first question from Darren Lehrich with Deutsche Bank.

I guess, I just wanted to start out with a question around the commentary you're providing on acquisitions. Certainly, can appreciate the success you've had over the last several years. I just want to make sure we're interpreting the commentary correctly. Are you seeing anything change in the acquisition environment that makes you any less confident about your ability to pace yourselves at a similar level? And maybe if you can just frame that. I guess, the context certainly is that, I think, originally, you provided some framework for thinking about acquisitions and that somehow morphed into a target or guidance and I'm just wondering if you're just trying to correct that.

Darren, thank you. Exactly. I will take full blame responding earlier in the year to questions about the plans -- we do have internal goals, we never plan to give guidance. We are very confident. I cannot stress how confident we are on the acquisitions moving forward. Pipeline is -- I got to tell you, pipeline keeps getting better. It's remarkable. We're seeing hundreds of millions of dollars of acquisitions monthly. We are seeing, as I mentioned, the repeat business with sellers that we dealt with previously. We have excellent visibility for the first half of 2014. All we are trying to do is correct what was interpreted to be guidance so that -- and quite frankly, as our cash flow is growing, we hope to increase the number of acquisitions we can make because we're generating more cash flow that we can fund the acquisitions with. So it was only to try to remedy the fact that people read into some of my comments that there was guidance for the year. But we are highly confident, I appreciate the question. I ask everyone not to read into it at all. The program continues to be very successful, and we're very excited about our future as we look at additional acquisitions.

Got it, okay. I guess, just as it relates to the same-store occupancy trends, intra-quarter you're framing for us a much stronger end. I guess, I'd be curious just to maybe look inside the quarter and see how your operators experienced occupancy, whether it was dips in certain geographies, whether there was something that you might be able to put a little more insight into on the overall trend on a same-store basis.

I'd be happy to. It's interesting. As I commented on the second quarter, we ended very strong in June. I mean, obviously, we had the effects of the flu that impacted the first half. We had a very good end to June. July, we had higher attrition, which just kind of happened. So we had a net loss in July. There was nothing geographically about it at all. Actually, what we saw in July was the -- what's interesting about the quarter, starting with the first week of July, we started to see a consistency in deposit-taking that's the highest I've ever seen in our company's history. And I commented, we started to see deposits, weekly deposits, increasing 20% greater than we saw in the second quarter, which clearly were above the first quarter with the effects of the flu. And we had a run starting around the second week of August through September both on move-ins, lower attrition, higher deposits that were very encouraging. So if you do the kind of the math, we had a loss in July. August and September had an equal number of net move-ins, which is very encouraging. And for the quarter, we ended up with 74 more residents on a same-store basis at the end of September than we had in June, which results in a 70 basis point improvement in occupancy. And the anomaly is the average financial occupancy was, as I said, was dampened because of just the fact that you've got this cumulative effect. We're hopeful that, in the fourth quarter, we'll start to get the benefit of the success that we had at the second half, really of the third quarter, to start seeing better financial occupancy and gains in the fourth quarter.

Got it. And just one last thing before I jump off here. So you're expressing confidence around Q4. But did you see any attrition, thus far, in the quarter? So you've got good visibility in deposits. But what about the attrition side of the equation?

Attrition in the fourth quarter. Right now, I mean, we're only talking about 4 weeks. We're working now at levels, which are actually below first and second and pretty -- it's actually a little less than -- pretty similar to third quarter. So we're hopeful that we'll start to see positive trends. Right now, the trends for the quarter, additionally, are positive. Incremental to what we had in the third quarter.

[Operator Instructions] Next we'll go to Daniel Bernstein with Stifel, Nicolaus. Daniel M. Bernstein - Stifel, Nicolaus & Co., Inc., Research Division: I just want to make sure. What did you say would be the average financial occupancy change quarter-over-quarter rather than the quarter end?

Well, what Larry's referring to, Dan, was actually the physical occupancy, not the financial occupancy. Daniel M. Bernstein - Stifel, Nicolaus & Co., Inc., Research Division: Right. Okay, okay. Do you have an average for the quarter rather than -- I was just trying to understand, the 70 bps was a quarter-end-to-quarter-end. What was the change on an average basis Q-over-Q?

Well, again, when you say on average, it was -- it's 70 bps. That is the average. If I'm saying, if you take a July, August and September and take the average, actually the average -- I think, the average would have been about 24 basis points. This is the average exactly. The average would have been a positive 24 basis points. You take 74 divided by 3 we had gained. Daniel M. Bernstein - Stifel, Nicolaus & Co., Inc., Research Division: Okay, okay. And then, does that include -- that same-store, is that equal to the same-store, 89 properties, you have in the supplemental? Or is that 102 properties just excluding the 2 CCRCs?

It's taking -- it's 100 properties Q2 to Q3 of this year. Daniel M. Bernstein - Stifel, Nicolaus & Co., Inc., Research Division: Okay. I just want to make sure whether it was apples-to-apples or apples-to-oranges with year-over-year data...

It was apples-to-apples. We did not include any acquisitions in it. Daniel M. Bernstein - Stifel, Nicolaus & Co., Inc., Research Division: Okay, okay, okay. And then on the year -- the year-over-year numbers, it looked like again, on the same-store, the 89 properties occupancy went down a little bit. I just -- again, it doesn't include a large number of properties that you have. But I just want to understand what might -- what was influencing that number? And then, maybe I have one more question after that.

Again, the year-over-year, unfortunately, is the cumulative effect of the flu season and the residual flu season for the first half of the year. So when you look at the numbers, you're starting, in the whole, if you will, on a comparable basis and that's why you see the drop year-over-year. We think the sequential -- both for purposes of what NIC MAP does -- by the way, our methodology using the 70 basis points end-to-end is identical to NIC MAP methodology. So we want to be consistent. We're showing trend lines and being consistent with how the industry reports. But the average, unfortunately, was dampened by the effect of the flu and carrying over into the second quarter. Daniel M. Bernstein - Stifel, Nicolaus & Co., Inc., Research Division: Okay. And by the way, I would just note that even though you're not giving guidance or what you had before wasn't guidance, you're actually making your non-guidance, so...

Well, thank you, [indiscernible] and by the way, we also [indiscernible] guidance, too, okay? Daniel M. Bernstein - Stifel, Nicolaus & Co., Inc., Research Division: One question here on the pipeline. I don't know if you could characterize if the pipeline is similar to what you're doing before in terms of assisted living versus independent living? And if you've seen any movement in cap rates given the amount of cash money that's kind of flowing into the industry from non-traded REITs and private equity. And I guess, in a related question here, given the amount of construction that I think maybe has picked up in assisted living, are you looking maybe -- would you consider maybe looking at more independent living assets versus AL? Just trying to get a total picture of how you're thinking about the pipeline and where that's heading?

Sure. Right now, we have a good combination of independent living and assisted living and memory care. What we have been seeing in the marketplace has been more either 3 levels of care or assisted living or assisted living with memory care. It's more a function of construction cycles. There really has been very little independent living built nationwide since around 2000. So when you look at that most of the buildings that we are building are newer than 10 years, they are typically going to be more heavily weighted to AL and memory care. As I -- you saw this quarter and last quarter, we made 2 acquisitions. We're actually enhancing the licensing on those buildings from what the prior operator was serving and we think that will significantly increase the cash flow. In the second quarter, we acquired a building about 45 units. We're now licensing that building. We think the cash flow in that building will actually increase by about 50% within almost 3 years as we start to see the effect of the higher license. So we're very comfortable with the mix. We still -- by the way, our AL and memory care still is a very solid 90% week-to-week. So we had not seen any, any impact at all, as I said. We're not seeing construction. We're not hearing about construction. We're not seeing it in our numbers at all. So in the markets in which we're operating, we're not concerned about what's out there. We think a lot of what's being built is in more affluent markets that we're looking at, as well as freestanding memory care. As far as cap rates, as I think I said previously, because we do have both some people from the press as well as some people that…

And next, we'll hear from Dana Hambly with Stephens.

Larry, could you just -- I was a little curious on July because when you reported the last quarter, it sounded like July and August were trending pretty well. And so I just wanted to get a little bit more color. Did it -- is July typically a big attrition month for you? Or is this just an abnormal one compared to REIT?

It was abnormal. Dana, it was abnormal. When we did the call, I don't have the numbers right in front of me, but we started to see a nice pickup in deposits starting with the week of July 6, right? It got better the week of July 20. And really, it was very strong. We just, unfortunately, had a -- we had -- with this amount of business, we had 1 extra week of attrition that we typically see that skewed our numbers. I mean, that's how granular you can be in this business, if you will. So by the third, fourth week of the month, we expect to start to see really strong net gains. And while we were very encouraged by deposit-taking, I mean, July 12, 102 deposits; 105 in July 19; 99 July 26. I mean, those are really strong numbers. Unfortunately, we had a week with 137 move-outs that we didn't anticipate. So it was really just 1 bad week that kind of hurt the whole month. But the trend -- and we saw it come to fruition in August and September, of course, those deposits moved in over the next 30 to 60 days.

Okay, all right. That makes sense. And just, Ralph, obviously, the health care claims continue to frustrate. Any other unusual items that are worth causing out -- calling out in the expenses?

Really, Dana, that's about it. The rest of it was very much in line. We did increase our operating infrastructure in the third quarter, which will lead to a higher rate of G&A going forward. But we expect that to be more than offset by improved operating performance through the promotions that we've had in the organization. So there is a little additional manpower in place. But we expect that to more than be paid for by the improvement in operations.

Okay, okay. And just the last one for me, just on rates to finance these deals. Your second quarter rate were like 5.93%. The stuff that you just closed in the third quarter was 5.44%. What should we think about going forward? Or what are you seeing in rates right now? Have we inched down from there?

Well, what happened to us, Dana, was we closed 2 communities in September whenever the 10-year had spiked and we closed those at 5.93%. Then we closed 2 more in October and our fixed rate on one of those was 5.44%. So it's actually backed off about 50 basis points from the peak. Our borrowing rate today is probably in the mid-5s. And we think that, that's very attractive based upon the fact that it's 10-year fixed rate nonrecourse debt with 30-year amortization. So I'd say today, our borrowing rate's about 5.5% and we're very pleased to be able to borrow at that rate.

I would say 5.25% to 5.5% is kind of the range. Right now, it's [indiscernible] 260 [ph]. Based on the spread, it'd probably be 5.25% to 5.5%.

If we're still getting kind of mid- to high cash-on-cash returns then?

We're still getting 17%. That's what's interesting. Look at our numbers. Look at the numbers in the release, the CFFO on equity, even with the rates being higher, we're still 17%. We are still being able to capture that spread in cap rate to interest rate that's allowing us 17% or so return on equity, which is also higher than what our expectation has been in this acquisition program, but they're very consistent with what we've done over the last 2.5 years.

Okay. I'm sorry, just relative to -- when you started the acquisition program, what were you thinking more kind of the cash-on-cash returns?

12% to 13%

At that time, the interest rates were actually 6.5%. When we presented the strategy to the board at the end of 2010, we thought we'd be buying properties at effective cap rate at 8%, financing at 6.5% and the kind of cash-on-cash return will be 12% to 13%. We ended up buying things better than we expected, and interest rates have continued to be lower than we expected.

And next from MTC Advisors, we'll hear from Todd Cohen.

So just a couple questions and 1 to -- I think you may have hit on this just recently, but I missed a part of it. Some of these acquisitions that you are making you're doing this bridge financing and apparently that's so that you can get -- you can convert some of these units to different types of care. And I don't know if I heard you say this, but is the expense associated -- even though you have an expense associated with doing that, will your cash-on-cash returns be somewhat higher than what the stated returns look like on the metrics you've provided when those conversions get done?

Actually, Todd, what's interesting in the acquisitions, we have virtually no expense. I mean, these are, as of write, in the stage where they operate that they can be converted to higher levels of care within the building code, conformity of these buildings. It was just the fact that the sellers didn't have the highest level of licensure for these buildings. So that they're very -- virtually no cost for the conversion. The returns, as I said, if you think about it, in one case, the average monthly rents will be -- could be as much as $1,000 higher than they are today. And when you spread that across a building, you could see on -- once those are stabilized that the actual cash returns could be 50% higher. I'm all about one out where on conversion, we could be buying things at an unlevered 14% return on purchase price and if you lever -- put the debt on, it's very, very high. So now...

Well, you do have debt on them, so it is high, right? I mean, these are all levered?

Yes. And if you think about it, if you're buying a property at an unlevered return at 14% and putting on 70% leverage at, say, 5.5%, you're going to get a very high return on that.

Okay. And then kind of going back to this question of guidance and non-guidance on acquisitions, I think the important thing is that -- is your financial capability. And so in my mind, I'm thinking that based on the pace at which you've done acquisitions this year and if, in fact, you get to your goal with another $65 million in the back -- in the fourth quarter, that we go into 2014 with a substantial increase in returns going forward. So I would think that would give you better financial capability to do at least the amount of deals you've done almost on an annualized basis going back the last 2.5 years. Is that -- does that make sense?

That's very well articulated. We agree with that. Thank you.

[Operator Instructions] And it appears there are no further questions. I would like to turn the conference back over to Mr. Cohen for any additional or concluding remarks.

Well, we thank you all for participating this afternoon. And of course, feel free to give Ralph or myself any follow-up calls, and we look forward to seeing you at a variety of conferences over the next couple of months. Thank you very much, and enjoy your evening.

Ladies and gentlemen, that does conclude today's presentation. We do thank everyone for your participation.