Good day, and welcome to the Capital Senior Living First Quarter 2018 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; risk 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; the other risks and factors identified from time-to-time in our reports filed with the Securities and Exchange Commission. At this time, I'd like to turn the conference call over to Mr. Larry Cohen. Please go ahead.

Thank you. Good afternoon, and welcome to Capital Senior Living's First Quarter 2018 Earnings Call. In the first quarter, we continue to take action to improve all aspects of our business, including leveraging our operational scale to reduce costs, increase cash flow from operations, and drive sustainable growth. As we maintain a culture of high reliability, accountability, and operational excellence we also continue to make excellent progress against our strategic plan. Despite the effect of seasonal attrition on occupancy we saw year-over-year growth in same-community revenue and net operating income, and our cash flow from operations exceeded our internal projections. By building on our 2017 cost control initiatives with further improvements in the first quarter, we have lower than anticipated expenses. Brett and Carey will discuss these initiatives as well as our 2018 cost initiatives which are expected to have greater impact throughout the year. Consistent with our goals from last quarter, we remain committed to improving our operational and financial performance. We are reaffirming our full-year 2018 guidance and we remain focused on executing our comprehensive strategy to deliver higher revenues, enhanced cash flow and maximize the value of our owned real estate. With that, let's turn to some operational highlights from the quarter. As expected high seasonal attrition decreased same-community occupancy 100 basis points sequentially from the fourth quarter. We continue to be particularly pleased that the proactive systems and protocols we implemented to combat the severe flu season greatly minimized its spread throughout our communities. Our flu protocols kept our residents healthier and allowed our communities to continue touring and leasing during the severe and extended flu season. With the implementation of new sales and marketing initiatives, we achieved the highest number of first quarter move-ins in the history of the company and ended the quarter with…

Thanks so much, Larry, and good afternoon everyone. We have discussed in prior earnings calls that Capital Senior Living is in the process of making a fundamental shift in our operating platform from a largely decentralized model with a great deal of local autonomy to a more balanced model that allows for centralization of certain functions to create a better and more consistent level of service for our local operators, while still allowing them the degrees of freedom required to understand and react to unique circumstances in each one of their markets. I am excited to share with you that we continue to make tremendous progress toward this goal. With every decision we make in terms of rolling out our more centralized operating system, we keep three intertwining goals in mind, creating the safest and most welcoming environment possible for our residents, developing the efficiencies in the economies of scale of being a larger company, and removing non-value added tasks from our local operators, so that they can have more time in their days to do what they are truly passionate about, which is caring for the seniors that we serve. We celebrated several important milestones on our journey during the first quarter that we will discuss today. Firstly, Capital Senior Living has worked with our food supplier, U.S. Foods, and their blueprint menu program to implement a new national menu system that went into effect in early April. This system will ensure that every meal plan for our residents is reviewed by a registered dietitian to ensure that we are effectively meeting their nutritional needs. Well there will be some regional variations based on the request of our residents. The menu system will create much more standardization of our food offerings across the country to allow for more effective…

Thank you, Brett, and good afternoon, everyone. The broad-based improvements that have been implemented across our operating platform beginning in 2017 and continuing into 2018 and are focused execution on these initiatives are translating into consistent year-over-year growth in same-community revenue and net operating income. As Larry noted early, we've now achieved growth and same-community net operating income for seven consecutive months, including each month in the first quarter, which is historically the most challenging quarter of the year. Our financial occupancy declined in line with their expectations in the first quarter and with lower than anticipated and expenses, our CFFO exceeded our internal projections. In the results I'll discuss in the remainder of my comments, and as we note in the press release, the Company's non-GAAP measures exclude two communities that are undergoing repositioning, lease-up of higher licensed units or significant renovation and conversion. The non-GAAP measures continue to include the two Houston communities impacted by Hurricane Harvey since our business interruption insurance restores their economic loss. However, the Company's statistical measures, as shown on the last page of the earnings release, exclude the results of the two Houston communities since they currently have no residents or revenue and to include them would make the statistical measures less meaningful. The Company reported total consolidated revenue of $114.5 million for the first quarter of 2018, which was decrease of $1.3 million over the first quarter of 2017 due to lost revenue associated with the two Houston communities impacted by Hurricane Harvey. Revenue for those two communities in the Houston area was $2.4 million in the first quarter of 2017. Operating expenses decreased $1.1 million in the first quarter of 2018 to $71.7 million. Operating expenses in the first quarter of this year included a $1.6 million business interruption insurance credit…

[Operator Instructions] We’ll take our first question from Chad Vanacore with Stifel. Please go ahead.

Hey, good evening all.

Hi, Chad.

Hey, so just looks like occupancy to me, looks like it took a sequential beating pretty heavy starting the first quarter. Starting thus far in the [hold] in the first quarter, how do you bridge back to higher occupancy by the end of 2018?

Chad, this is Brett. We have a multi-pronged strategy to continue to grow occupancy, first of which in addition to adding John Klitsch as our Vice President of Sales and Business Development. We have now created a new organizational structure within our sales and marketing structure to essentially separate the responsibilities with a Senior Director of Sales that reports to John and a Senior Director of Marketing that reports that to me. The focus of our field based sales force now is training them on an evidence based sales cycle, so that they understand each key component of the sales cycle in making an emotional sale. We have a national sales training platform that we've rolled out and now continue to optimize. We're doing very focused secret shopping to get feedback about where we can enhance that sales cycle. And then we are also on the marketing side focused on differentiating our marketing strategy through greater use of electronic marketing tactic, social media marketing, which is something that we've piloted over the last couple of months in our Red Zone properties that are – those that are most struggling with occupancy and we've gotten some really good results in driving new leads to our properties. We're also doing some innovative things in terms of our utilization of a centralized call center having leads go directly from our third-party aggregators, such as A Place for Moms into the call center. So that we have more rapid turnaround and that those get handed off as a warm lead to our communities in a more rapid fashion, and we're also using the call center to do some mining of our old leads. So everyone's on a little bit of a different decision making cycle, some may take longer and so those leads that are more than 90 days old get continuously mined by our call centers, so that we can continue to have a touch point with those individuals. And we've seen some nice early results from that as well. So we're looking to optimize our current revenue and sales cycle. While we're still looking to diversify into some new ways to grow, our market share and that's really where some of these innovative healthcare partnerships start coming into play, and we're making tremendous progress in some of the dialogues that we're having from an accountable care standpoint as well. I think Larry had something…

Chad, I’d also like to comment, as I said in my remarks, we had the best first quarter in number of movements in the history of the company, despite probably the worst flu season the we've experienced at least a decade and pretty bad weather in parts of the country throughout the quarter. To give you some perspective, our move-ins in the first quarter were 14% higher than last year, and 10% higher than the last three years. We lost occupancy because our attrition was higher. We had a very – also our largest number of move outs and a very, very bad winter with a lot of deaths. So I'm extremely encouraged that in light of all of the commentary we hear from our peers, on the calls looking in the data, the demand is growing and more importantly on the front door we're seeing significant improvement in actual move-ins with attrition – coming down through better months, better weather throughout some seasonality and we continue at this pace we will have gains in occupancy for 2018.

All right. So I think about that you had a good move-in but even higher attrition at first quarter. Second quarter the expectation is that occupancy is generally flat and then [indiscernible] start to grow in third quarter? Am I thinking about that the right way?

Yes, that’s the general trend Chad is to kind of stabilize in the second quarter and then begin to grow in the third quarter. That's right. That's the …

Even for long flu season shouldn’t we expect occupancy to continue to decline sequentially in the second quarter and what am I missing there?

I think it's going to depend on how much it picks up in May and June Chad because that's really the key but we expected to stabilize out at some point in the second quarter and then begin to grow in the third.

We did see about a 50 base improvement in financial occupancy in March, Chad, over February. Yes another aspect that's very important, this flu season came early. Last year flu was late it impacted into the second quarter. If you go back to 2015 which is more analogous we actually had growth in the second quarter, we're expecting flat this quarter. So I do think the timing of the flu is relevant as relates – the move outs really started to accelerate in December. And again financially they come down the second – next month, but the fact we did have gains in occupancy in March gives us some hope that we will flatten out for this quarter.

And Chad, as we noted that we did decrease at levels that we expected in the first quarter and because of that we continue to project our full-year revenue growth in the 2% to 3% range and our net operating income growth in the 2% to 4% range in CFFO at $0.04 to $0.06…

So [indiscernible] better on loss of occupancy than you projected for the quarter?

We were about 20 better than we projected for the quarter.

All right. Thanks for taking the questions.

[Operator Instructions] We’ll take our next question from Joanna Gajuk with Bank of America. Please go ahead.

Good afternoon. Thank you so much for taking the question here. So just to confirm, so when you talk about the Q1 performance when you said it exceeded expectations on the CFFO metric, so sounds like it's, I mean I guess Carey just mentioned in – maybe occupancy was slightly better, but it’s mostly the cost, right, it came at so much better than expected?

That is right. Even if utilities come in high, our expenses were considerably better. Labor and food were both lower than expected more than offsetting that higher utilities. Our contract labor costs were also lower than we expected coming in the quarter, and then some of the other smaller categories just we – we were conservative in our projection of expenses and they came in better than what we projected.

Great. And then so when you talk about the cost savings for the coming quarter the $500,000 to $750,000 per quarter since the second half of the year, so that only reflects the currently running or to be launched program, because then you also mentioned at some point at you see there could be some additional initiatives, so that's pretty much – those savings $500,000 to $750,000 that’s the savings on what you kind of already implemented so far?

Based on our projection, our current projection of what we'd expect both from the food and adding some of these other categories to the DSSI front-end procurement platform for the rest of the year as well as continuing this work on the nationalization of regionalization of contract. So it's kind of a projection of all that Joanna and it's our current – we won't know that exactly impacted that until we finish some of this work. But we feel comfortable in saying that that's the level of expense savings we will get from those particular initiatives.

And that's obviously included in your same-store NOI projection for the year.

Yes. That is included in that same-store NOI, yes.

And then, I guess so you're talking about sort of the full-year guidance in terms of the organic growth, but previously you mentioned your plans to come back to the acquisition market, so any flavor there in terms of what should we expect and when should we expect it? Any trends in terms of valuation, and also at the same time, what do you think sort of the financing costs would be when you are doing that the next deal?

Yes. Joanna. Hi, it’s Larry. We are back looking at properties, looking at acquisition opportunities. We've actually created some very interesting filters of what we're looking for based on kind of our experience with our portfolio in other acquisitions. As I said, we're not going to guide two acquisitions, but we would expect that we will start to see acquisitions throughout the second half of the year, probably more in next year. Financing today that with the 10-year where it is close to 3%, we'll probably in the low fives. Again, if you look it's still lower than where it was in some of our acquisitions about three, four years ago. In fact we're actually looking at doing some refinancing now to take some of those loans back down to a lower interest rates from what we've borrowed out, which is close to the mid fives a few years ago – four or five years ago. So we think that the market is still attractive for acquisitions. We feel that the – one thing that's very important as you know when we made acquisitions previously, our culture and operating platform was much more decentralized. So we bought buildings. We really continued to run them the way the former owner did with our insurance programs. We put in our GPO for food, but that was pretty much the limit. We did our policy procedures and training. If you look at how robust the initiatives are that are going to be rolled out this year across the full expense item area, we should get further economies immediately on those acquisitions, which we didn't necessarily receive in our past experience.

Great. Good color. And also another I guess related topic, because I guess the latest sort of semi acquisition transaction just done and what’s the buyback of your leases from your landlord, so any plans on that front in terms of sort of low risk improvement in cash flows by doing that?

We are working with our landlords on a multi-tier strategy to reduce our lease exposure, improve our balance sheet, and improve our portfolios performance. We were successful in buying four properties back from Ventas in the first quarter of last year. We are looking also at disposing of a few properties with some landlords properties where mortgage may have turned, but we feel that it's a good time to sell some non-core assets and eliminate those from our lease, which will improve our coverages and our cash flows. And we're continuing to have a very good discussion with other landlords of ways that we can restructure, which could include buying back or other ways to restructure our leases to continue to reduce our lease exposure and increase the percentage of our ownership as relates to our total portfolio.

So is there something more immediate that we could expect within the next, call it 12 months or it's still kind of early to talk about that?

I think over the next 12 months, we will have more to discuss.

Okay, great. Thank you so much for the color. I’ll go back to the queue.

Thank you, Joanna.

Thank you, Joanna. End of Q&A

[Operator Instructions] And it appears there are no further questions. At this time, I’d like to turn the conference call back over to Larry for any additional or closing comments.

Thank you very much for your participation and support, as always feel free to contact Carey or myself if you have any further questions. We also look forward to seeing a number of you at upcoming conferences over the next month or two, and we wish you a very good evening. Thank you very much.

And once again, that concludes today’s conference call. We thank you all for your participation and you may now disconnect.