Good day, and welcome to the Capital Senior Living Fourth Quarter and Full Year 2015 Earnings Release Conference Call. Today's call 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 in 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 risks and other risks and factors identified from time to time in our reports filed with the Securities and Exchange Commission At this time I would like to turn the call over to Mr. Larry Cohen. Please go ahead.

Thank you. Good afternoon, and welcome to Capital Senior Living's fourth quarter and full year 2015 earnings release conference call. I would like to start by thanking our strong team of employees and Capital Senior Living' communities across the country for providing our residents with exceptional service and care and to congratulate them on achieving an outstanding 95% resident satisfaction score for 2015. I am extremely proud of the team's hard work and dedication. It is our talented employees that give us such great confidence in the future of our company, in the continued quality care we provide our residents and the long-term value we're creating for all of our shareholders and other stakeholders. We continue to demonstrate the advantages of our clear and differentiated strategy as we successfully execute on our multiple avenues of growth. Our focused execution produced growth in all of our key metrics in the fourth quarter including revenue, occupancy, average monthly rent, NOI, adjusted EBITDAR and adjusted CFFO as compared to the prior year. Our occupancy gains outpace the industry, with same-community occupancy increasing 150 basis points since the flu impacted first quarter of 2015. I’m encouraged that the flu has been weaker and our attrition rate been considerably lower thus far in 2016. Our strong occupancy growth is resulting in pricing power with a 1% sequential increase in fourth quarter 2015 same-store average monthly rent, reflecting the price increases we implemented this past fall at communities with occupancies of 93% or higher. Another 3% market rate increase went into effect on January 1, 2016, at all communities and in-house rents will be increased by 3% on residents one year anniversary dates. Our conversions of independent living units to assisted living and memory care units also continue to show timely progress. Another important differentiator for…

Thank you, Larry, and good afternoon, everyone. Hopefully you've had a chance to read today's press release. If not, it's available on our website at www.capitalsenior.com. 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 of $107.5 million for the fourth quarter of 2015. This was an increase of $7.4 million, or 7.4%, over the fourth quarter of 2014. The increase in revenue is largely due to acquisitions the Company made during or after the fourth quarter of 2014 net of dispositions. Since that time we've acquired 10 communities, including one community that we purchased during the fourth quarter of 2015, and we've disposed off five nonstrategic communities. Excluding the revenue of the five communities we've sold since the fourth quarter of 2014 from appropriate periods, our revenues increased $10.3 million or 11.1%, in the fourth quarter of 2015 as compared to the fourth quarter of the prior year. For the full year 2015 our revenue increased $28.3 million or 7.4% to $412.2 million. Revenue for consolidated communities excluding the three communities that are undergoing repositioning, lease-up or significant renovation and conversion, increased 7.3% in the fourth quarter of 2015, as compared to the fourth quarter of 2014. It's important to note that this 7.3% increase was achieved despite having 76 less units available for occupancy in the fourth quarter of 2015 than in the fourth quarter of 2014. Additions to available units from acquisitions were mostly offset by reductions to available units related to dispositions and then conversion and refurbishment projects currently in progress have temporarily taken out units -- out of circulation at certain communities. Our net operating income for these communities increased 4.7% in the fourth quarter of 2015…

Thank you. [Operator Instructions] We'll take our first question from Chad Vanacore with Stifel.

Good afternoon.

Hey, Chad. How are you doing?

All r8ight. Good. So just looking at the acquisitions that you did in the fourth quarter and the first quarter Seems like the first quarter acquisitions suppose are a lot more accretive. Can you explain why that is?

The amount of debt on the properties is a little different. There was less debt on the property that we acquired in the fourth quarter. Fourth quarter acquisition was a class A building that was something that we thought did very well geographically, a very strong building. But it's really a function about the financing looking at the amount of borrowing we had against that property as compared to the properties we closed this year.

All right and then looking at that, is higher average monthly rent than your overall portfolio. So what's the asset mix in the new acquisitions versus your current consolidated portfolio mix?

If you look at the acquisitions, they are predominantly assisted living with memory care. Right now we're at 55% independent living -- I'm sorry, 45 independent, 55 assisted-living, the average monthly rent if you look by level of care in the fourth quarter are independent living rents average around $2,500. Our assisted living rents are about $4,000 and our memory care rents are about $5,000. Then as I said the average portfolio was 34%, 36%. If you look at the acquisitions these average rents are higher again more weighted towards assisted-living and higher than on average mix right now.

All right and then Larry you also mentioned in the press release a robust pipeline. Do you want to go in any details upside that pipeline, what they of assets that you are looking at?

I said on the call that we really are in a unique position with a lot of the other natural buyers pulling back from the market. We always have hundreds of millions of dollars of acquisition opportunity in the pipeline. I mentioned in my comments about cherry picking. We typically only buy about 15% of the properties we look at right now. Right now we have several hundred millions of dollars in our pipeline. They are typically one to one situation is a three property transaction. I would say they're all A or B quality assets in our geographically country and region with a good mix of again AL and memory care half off-market, half coming to us from people we know. So again the reputation we have and the relationships we have to facilitate this and the pipeline keeps growing. So we continue to see high quality properties that we are very selective and very encouraged by our position in the market right now since we don’t have to access the public capital markets to fund our growth that we can continue a very strong acquisition program throughout this year and into the next few years.

All right and then you alluded to maybe the competitive environment for acquisition being a little less so nowadays. How should we think about Cap rates and yields on those assets?

Well, we’ve always been able to buy properties at attractive Cap rates. That continues, we didn’t typically bid our properties in portfolio transactions. The discipline that we have, the returns that we're able to achieve and the financing again interest rates right now, tenure is down to 175 so obviously it’s a very-very attractive market. I will tell you that there is less transactions. Our lenders are more desirable to do business with us because we have a great relationship and are really some the dominant borrowers from some of our lenders. So they are very competitive and as I said, we believe we can continue to allocate capital to acquisitions as well as our share repurchase as well as our renovations, conversions all the other areas of growth that we’re focusing on that will add to significant increase in shareholder value and remain very disciplined as it relates to the pace and the quality of the acquisitions that we make.

All right. Thanks for taking my questions. I’ll hop back in the queue.

Thanks Chad.

We’ll go next to Julia Gajuk with Bank of America.

Hi Joanna.

Hi how are you? Thanks for taking the question here. So on the comments about I guess the driver of growth that you expect or I guess that you aim for the year, so give your thought around close to 2.5 and occupancy is 100% or 100 basis points sorry. And then NOI 46, so I guess the question is because it feels like I guess looking for the average for the year, when I guess we're closer to maybe closer to 2.5 but I guess Q4 was very strong and then occupancy looks like maybe was better than that. So what gives you the confidence that you can grow occupancy at 100 basis points of same-store basis for the full year and also in terms of potential NOI, but I guess the coverage also is a little lower which I guess it’s because of the issue in this quarter? So how do you view the essential NOI in 2015 for you and also what gives you confidence in probably occupancy 100 basis points for the year?

I’ll take the first half of the question I’ll let take Carey take the second half and Joanna it's great to hear your voice. As I mentioned in my comments we lost 90 basis points financial occupancy in the first quarter of 2015 because of the flue. And we gained sequentially over the three quarters 150 basis points. Right now we're seeing a much weaker flue and the difference in our move outs is about 90 fewer on a same-store basis than for the same period last year. I’d never seen better metrics of our sales and marketing team as it relates to our conversion rates to deposits. We have in January for example we had more properties it was actually up 58% from what we saw in the fourth quarter for properties that gained five or more deposits in the month of January. I talked about Plano the Dallas market what we’re seeing as far as the supply. I'm happy to say that the demand is so strong that our two properties actually took 13 and 10 deposits each so far this month. If I go around the country and look at our performance, I have a lot of confidence that this team is very focused. We have a fabulous team at the community level that is most seasoned and best regional corporate team in the country and we're not distracted by other issues. So I’m highly confident that barring something out of our control whether it be illness or weather or something that we have tightened our focus. We have enhanced our tools and resources and they're all generating terrific results. In fact we talk about our zones. We have green, yellow and red. Our green zones which average 95% we have more properties in the green zone that ever seen in the company and the fewest in the red zone. Part of that was the decision to sell five buildings last year, but more importantly it's the effectiveness of our renovations, refurbishments and other tools that we were using. So I would just say Carey talked about momentum, we’re seeing very strong momentum. The one area that we can’t control is attrition. About 80% move out in our communities are because of people passing away are moving to higher loads of care. But other than that, I have all the confidence in the world that the pace of which we've seen these type of gains in occupancy should continue and possibly accelerate throughout the year and I will let Carey talk a little bit about on expense side of that spread between rate and expense growth.

So with that kind of, if you think about rate increasing 2.5% or so and then another 100 basis points of occupancy, you’re talking about revenue somewhere in the 3% range, in that 2.5% to 3% range for the year and we certainly think we can grow our expenses at 50 to 100 basis points less than that. We’ve had a great track record of controlling our expenses. I noted in my remarks that our same community expenses were up on average over the past four quarters only 1.3%. I think it's hard to imagine we can continue with that rate, but certainly in the 2% to 2.5% rate I think for this next year, we should be able to achieve that. Labor we've only -- that was up a little bit more in the fourth quarter, but it was really related to those two items that I spoke about and after moderating for those two items it was up about 2.9%. One thing I didn’t note in my comments was that with the increase in AL that we have as Larry noted versus IL is little heavier AL and so we have more caregivers and so covering those holiday shifts also caused us a little bit extra cost in the fourth quarter of 2015 versus the fourth quarter of 2014 on the labor side. But I’m confident just our operating team does a fantastic job of controlling expenses. They are very focused on that on an ongoing basis and so I feel good about being able to control our expenses and achieve that NOI growth.

Okay. Just to summarize so you expect same-store NOI I guess to accelerate from 2015 because you feel like the cost control will be there and more importantly I guess the topline growth the same-store occupancy combined with 2.5 rent increase or top of that comp.

Joanna one thing I'll also reiterate our same-store rate growth in the fourth quarter was 1% higher than the third quarter. As we discussed at the Investor Day we implemented increases to our market rents and in-house rents for those communities that were 92% or higher occupied and we implemented a 10% increase in level-of-care fees. January 1 of this year we just implemented another increase at all properties on all level of care and rents. So we feel that we have some pricing power and we will continue to push rate as well. So I think that as long as we can continue to execute and get that gains and occupancy with these rate increases, we should see the top line grow as well and then obviously that will close down to the NOI growth.

Great. And you mentioned marketing I guess that you're seeing that they're doing a pretty good job. So can you talk about the expenses associated with that in terms of marketing spending, how it compares over the last couple of years and then any comments around the sources internet versus others and where do you see this going forward.

I will let Carey, Carey go ahead.

I'll talk about advertising really primarily Joana that has -- there has been rationalization within our advertising expenses. Some of the things, the dollars we used to spend on newspaper and television and direct mail and yellow pages have really reduced dramatically and we've moved that expense more towards internet search methods. And so they've kind of moved that direction referral fees, which is included in our advertising cost have increased because we've gotten a greater number of leader from A Place for Mom and Carrying.com especially, A Place For Mom and so that has increased over the last couple of years and we expect that to continue to be that way going forward.

Joanna let me give you some metrics, 67.6% of our leads are internet referrals. The cost of those leads per move in is $126. Our website captures another 10%, the cost per lead is $105. Our call center that we implemented over the last year has been very effective in driving leads as well at a cost of 110 per lead. So if you look at our adverting it really is very little when you say really in that category of the referral fees that we're paying to A Place for Mom, Carrying.com and other sources on the internet, but as Carey said, we have done, our sales and marketing team had done an excellent job of really rationalizing the costs, cutting back on direct mail, cutting back on newspaper ads, yellow page, radio all the traditional. And really if you look at it, it’s a highly efficient process at a very low cost most of the cost you see in that category is really referral fees, which we're happy to pay because we're getting a resident of two to three years with significant income revenue that’s been generated.

Great, thank you. That’s all from me.

We’ll go next to Brian Hollenden with Sidoti and Company.

Hi, guys thanks for taking my question.

Hi, Brian.

With stock sitting at about $16, any thoughts on conducting a larger share buyback program compared to further community acquisitions just any through about it, how we think about -- how you think about capital allocation?

Brain, I would be happy to do that. At today’s closing stock price a $10 million buyback, we buyback about 630,000 shares. That will reduce our outstanding shares from $27.8 to basically to $27 million or $100,000. We've earned a $1.64 of cash flow for the year, its $0.03 accretive. That same $10 million in acquisitions will generate cash flow of $1.6 million that's $0.06 a share of CFFO. It would enhance our real estate value. Most importantly that $1.6 million of cash that we can apply for other investment whether it be acquisitions, conversions, you heard the stats that carry. The accretive nature of our investing is so high whether it be conversions, acquisitions that it's interesting it may be counterintuitive, well we agree our stock is not reflecting our growth and our value and we'll continue this rate purchase program because we think it’s good investment. And shows the confidence and commitment we have to shareholder value, but the other allocations of capital are actually more accretive and more importantly actually create cash that we can then reinvest elsewhere and continue to enhance our shareholder returns.

Thanks for that color. Just one other question, assisted facilities making up about 55% of the operating portfolio at the end of -- at the end of the year up from about 50% the prior year. What -- where do you see that number finish income the end of 2016 as we move throughout the year with the conversions that you have in the pipeline.

Yeah, it will certainly inch up and with the conversions as well as with acquisitions, which you probably will have a significant component of AL I don’t think it will reach 60% by the end of this year, but it will be in that 55% to 60% range.

All right. Thank you.

Thanks Brian.

We'll go next to Ryan Halsted with Wells Fargo.

Hi good evening.

Hi Ryan.

Hi Ryan.

A question on the unit conversions, I think you said in '16 you're expecting $0.06 to $0.08 of CFFO from the unit conversions is that correct?

An incremental $0.06 to $0.08 that's right.

Okay. And that's on the 400 that are leased up, does that include the 200 and or I guess the 300 total units that you’re in the process of leasing up?

No it is not. So we would have probably -- the 100 that we finished by the end of this year, we probably have something like a penny of that in 2016 and then another $0.02 or so in 2017 incremental related to those. The 200 that we're working on for this year they’ll primarily finish up in the last half of 2016. So they you probably won’t have much impact in 2016. They could later in the year just depending on the timing of when they happen, but probably most of the $0.05 that we expect from those 200 conversions will happen in 2017.

Okay. Thanks and then on CapEx, it's running a bit ahead of expectations, I know you kind of called it out last quarter, but continues to go up, I just wanted to make sure I understand what projects is the CapEx going to?

It's going to the conversion projects as well as the renovations and refurbishments, where we have to do some kind of modifications for conversions, not all of them required that. But they have been hired and they will probably continue to be somewhat higher in 2017 probably around a similar amount, excuse me, '16 and then they moderate in '17 and '18. One thing I will note Ryan that you bring up is that GAAP lease accounting requires us to gross up the balance sheet and the cash flow statement for CapEx related to some of these projects that are really related to our lease properties that we're going to get fully reimbursed for. So it makes the CapEx number spear a little bit higher than it really is.

As I said earlier Ryan we have CapEx ongoing right now, major CapEx projects at 75 of our 126 properties, that's about 60% of the portfolio. So that is and we've seen the success in we talked about San Antonio and other markets where we refurbish properties, seen the properties even despite a lot of construction in markets that for the full year they maintain 95% of occupancy with NOI growth of 12.5% and that's pretty consistent throughout that. So we think it's a good allocation of capital. We're doing some conversions, we're putting money in, we expect to get 15% to 30% return on the investment for those investments and then the refurbishments, renovations, modernization of properties repositioning closed units at those two CCRCs we talked about. We think that's a good investment of capital to go into our properties to create significant value because we own most of them but also enhance the cash flow and as I said the expected return on the investment is typically mid teen type of return unlevered.

Okay, no that's helpful but how should we think about the renovation projects? Are those somewhat defensive in nature or do you expect at some point you would be able to take advantage of maybe faster rate increases or something along those lines?

Well there are two answers here. One is we have grown the portfolio by 60 properties in the last five years through acquisitions. The acquisitions are typically very new or recently renovated. There is not a lot CapEx there. We're investing the money in some of the legacy properties older properties that needed to refresh. These are buildings that either we built 15 years ago or some are even older. So these are offences and defense. It's really more offence because we're not trying to -- we're not doing this because of supply because we're not seeing much supply. We're doing it because it's the right thing to do for our residents. It's the time to do it. It's part of our business strategy and to freshen up the building and I would tell you when you look at the results and you see the occupancy gains and see the rate gains it's a prudent investment. It's hard to say that you can then push rents or something else. Clearly we now have two price increases in the last four months. So we feel we have some pricing power, but I think it’s really just part of the nature of the business that over a certain cycle there is the opportunity to do this. Fortunately the difference today is we have cash. We’re not your typical operator leasing building with minimal cash flow or managing for third party and having cash. So, it really is the ability for us to allocate the cash and resources that we have from operations to some of the refinancing and supplemental financings we can do at our properties that I feel we just really offensive to enhance these buildings to be able to improve their performance, hopefully push rents presence and obviously either improve…

That’s great. Thanks Larry. On the rate growth guidance the 2.5% it seems a little bit lower than some of the recent rate increases I just wanted to -- is there some level of conservatism in that outlook or is there something else that I should be considering.

Well, I think that if you look at the rate increases we're getting much higher rate increases in independent living. If I look at fourth quarter of January, February or actually rate increases on a same-store basis for independent living has been about 3.7%, actually 3.2%. Our AL is just below 3%, memory care we're finding rate increases about 1.5% to 2%. Again the average rate now is $1400. So there is a price point. So as I said earlier, we have a probably about 10 properties that are below 80% and there we will typically run specials and do things. So there may be a discount of the rate increase. And then we push the rates at the rest of portfolio. So it’s a blend and again fourth quarter we average 2.6%, but some of the rates actually were over 3% and it’s a combination of mix and look as we get more properties at 85% or 90% occupied, we probably can push rates a little more consistently throughout the portfolio.

Okay. That’s great. And then may be my last one just a modeling question, within the G&A how much was the one time Workers Comp credit?

It was $400,000.

That was in 2015.

Fourth quarter of 2015.

Okay. And so you had a similar credit in the prior year I’m just trying to get at should I be -- is this G&A get a run rate, is it -- are these onetime items refer or are these items recurring in nature?

No, they're not. We really -- we had one credit in 2014 that’s in the fourth quarter of 2014. We didn’t have one in '15.

There was no credit in '15, it was a '14 credit. But it caused that to be so less of an increase because of that. Actually we were down in the fourth quarter G&A if you take out the transaction and the onetime cost. But from a run rate standpoint the fourth quarter of '15 was a little lower because we did have favorable medical claims expense in the fourth quarter 2015 and that can vary from quarter to quarter. You'll have really good experience one quarter and the next quarter it might be a little higher. So over time that evens out and so our G&A as a percent of revenue in the fourth quarter was only 3.7% but it's probably better look at the full year rate, which is more indicative at 4.3% and I would expect going forward it would probably be somewhere in that 4.3% to 4.5% range of revenue and so does that help?

Yes, very much. Thanks for taking my questions.

You bet.

[Operator Instructions] We’ll go next Dana Hambly with Stephens.

Hey, thanks good afternoon.

Hi Dana?

I appreciate all the comments and I was hoping Carry may be you could help me bridge your comments on the first quarter I think you said you had expected the CFFO to be up $0.01 to $0.02 year-over-year is that correct?

That’s right.

Okay, so that’s 3% to 5% I thought the acquisitions alone that you did in 2015 after the first quarter would have added $0.03 to $0.04 and you announced more acquisitions today. So can you just help me bridge the guidance with where we are -- with where you were less?

Yeah, absolutely. So if you think about what’s happened since the first quarter of 2015, we had -- yes we had acquisitions and that added about 750 units or so, but we had dispositions that took out about almost 700 units. So it's fairly even so as a little bit of an increase from acquisitions as far as units added, but on the other side as I noted on a same-store basis we have 140 less units available for rent in the first quarter of '16 versus '15 because some of them are currently out of circulation because of the renovations or refurbishments and conversations that we're doing. They were in the middle. So even with all of that I feel good about the fact that we got increases in the first quarter of '16 versus '15 with all of that kind of considered together. And that just shows that the acquisitions have better metrics than the dispositions and that we've had good improvement in our core growth also during the year.

And Dana four of those five buildings we're sold I believe in first quarter of '15 so as you get to the second quarter and later, you'll see a bigger spread because then you'll see the full contribution of those acquisitions and on a comparable basis, those disposed properties will no longer beat in our numbers.

Okay. All right. That’s helpful and again Labor Day, not Labor Day, leap year is another two pennies or so in expense.

Yeah, because we have an extra day this year because of that.

Actually if it's Labor Day we’ll give holiday. We will save some money.

All right, I've to factor that in too. And then Larry I thought you talked about the attrition rate or maybe Carey you had talked about in the fourth quarter however, it was pretty high early on in the quarter, that seems to me fairly unusual, any thoughts to explain that.

Resins are passing away, it does happen as I said, it's something that you really can’t predict. It happened pretty much in the month of October. I will say however we ended the last week of December we had over 200 move-ins, which is the highest I’ve ever seen in the company history. So we really did recover, but again what happens on financial occupancy there is a lag. So as occupancy rebuilds from the attrition that took place in October, it will start to see that as where we start in January, but the good news is we see very good momentum as we get through the quarter and we're seeing many fewer move outs because of weaker flu season. So I think that will end the quarter in a much better position than we did a year ago and have a lot of momentum going into the second quarter, but it is a function of the pace of move-outs in October. Since then we've had a nice increase in all of our metrics, deposits are consistently up, move-ins are up, so all that should help.

Okay. That's helpful and then last on the pricing, I get the annual base rate increases, but you guys have a higher AL portfolio these days and I know you've been more diligent on care plan charges, so could you just give a sense of that -- of your monthly rate what percentage of the care plan charge and then how should we think about the pricing growth just on care plan charges?

Well we actually -- I think we had a $1 million of care -- we had $1 million increase in care plan in the fourth quarter. Okay. And if I look at the breakout of the revenue, again I have a slight variance on say if I get you the actual number, as the care plan was up $1 million in the quarter.

That's year-over-year?

Year-over-year.

Okay.

So that clearly is a benefit of the increases that we implemented in September and October of 10%. If I look at -- I am just looking at one month to give you some range of what will be there. I am just looking at income statement right here, take a look one second give me one minute, I would say that the rent level for the care plan is probably about 10% of the rent.

Of the total. Great, thanks very much.

You bet.

And at this time I would like to turn the call back over to Larry Cohen for any additional or closing remarks.

Okay. Well again I want to thank everybody for your participation today. As always feel free to contact Carey or myself if you have any further questions. Again we want to thank our team’s hard work and dedication for a very successful 2015 and have a lot of confidence in our ability to having a very bright future. I think that we covered a lot of things today and again we appreciate your participation and look forward to seeing many of you over the next couple of months at various conferences. Have a good evening.

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