Capital Senior Living Corporation Reports Second Quarter 2016 Results

DALLAS–(BUSINESS WIRE)–Capital Senior Living Corporation (the “Company”) (NYSE:CSU), one of the
nation’s largest operators of senior living communities, today announced
operating and financial results for the second quarter 2016. Company
highlights for the second quarter include:

Operating and Financial Summary (all
amounts in this operating and financial summary exclude three
communities that are undergoing repositioning, lease-up or significant
renovation and conversion, unless otherwise noted; also, see Non-GAAP
Financial Measures
below and reconciliation of Non-GAAP measures to
the most directly comparable GAAP measure on the final page of this
release)

  • Revenue in the second quarter of 2016, including all communities, was
    $111.0 million, a $9.4 million, or 9.3%, increase from the second
    quarter of 2015.

    • Occupancy for the Company’s consolidated communities was 88.4% in
      the second quarter of 2016, an increase of 40 basis points from
      the second quarter of 2015 and a decrease of 10 basis points from
      the first quarter of 2016. Same-community occupancy was 88.6% for
      the second quarter of 2016, a 50 basis point increase from the
      second quarter of 2015 and a 10 basis point increase from the
      first quarter of 2016.
    • Average monthly rent for the Company’s consolidated communities in
      the second quarter of 2016 was $3,473, an increase of $110 per
      occupied unit, or 3.3%, as compared to the second quarter of 2015.
      Same-community average monthly rent was $3,426, an increase of $54
      per occupied unit, or 1.6%, from the second quarter of 2015.
    • Adjusted EBITDAR was $39.0 million in the second quarter of 2016,
      a 9.2% increase from the second quarter of 2015. The Company’s
      Adjusted EBITDAR margin was 36.5% for the second quarter of 2016.
      The three communities undergoing repositioning, lease-up or
      significant renovation and conversion, not included in Adjusted
      EBITDAR, generated an additional $0.8 million of EBITDAR.
    • Adjusted Cash From Facility Operations (“CFFO”) was $12.9 million,
      or $0.45 per share, in the second quarter of 2016 compared to
      $11.7 million, or $0.41 per share, in the second quarter of 2015,
      an increase of 10.0%.

    “The Company once again achieved solid growth in our key performance
    metrics despite the heavy rain and flooding in Texas and the Midwest
    that impacted our traffic in May and early June. Our performance
    continues to demonstrate the advantages of our clear and differentiated
    strategy to drive superior shareholder value by successfully executing
    on our multiple avenues of growth,” said Lawrence A. Cohen, Chief
    Executive Officer of the Company. “We achieved a record number of
    move-ins in the last week of June and expect momentum in our occupancy
    to continue to build in the second half of the year, as the third and
    fourth quarters are seasonally our quarters of greatest occupancy growth.

    “Complementing our growth is a robust acquisition pipeline that allows
    us to increase our ownership of high-quality senior living communities
    in geographically concentrated regions and generate meaningful increases
    in our key performance metrics and real estate value. We currently
    expect to close on the acquisition of three communities during the
    second half of 2016, and we continue to pursue additional opportunities.

    “We believe that we are well positioned to create long-term shareholder
    value as a larger company with scale, competitive advantages and a
    substantially all private-pay business model in a highly fragmented
    industry that benefits from long-term demographics, need-driven demand,
    limited competitive new supply in our local markets, a strong housing
    market and a growing economy.”

    Recent Investment Activity

    • During the second quarter of 2016, the Company completed supplemental
      loans on seven communities that resulted in $16.9 million in net cash
      proceeds, which recognizes the significant value that has been created
      in these communities since the date of their primary loan in July
      2014. These loans have an interest rate of 4.98% and mature
      coterminous with the original loans in July 2024. Also, the Company
      completed a supplemental loan on a community that resulted in net cash
      proceeds of $2.6 million. The loan has a 4.25% interest rate and
      matures coterminous with the original loan in September 2025.
    • As noted above, acquisitions of three communities totaling
      approximately $74 million are expected to close in the third and
      fourth quarters of 2016, subject to completion of due diligence and
      customary closing conditions. This will bring the Company’s total
      acquisitions in 2016 to approximately $138.4 million.
    • The Company has a strong pipeline of near- to medium-term targets.
      With a strong reputation among sellers, the Company sources the
      majority of its acquisitions off-market and at attractive terms.

    Financial Results – Second Quarter

    For the second quarter of 2016, the Company reported revenue of $111.0
    million, compared to revenue of $101.6 million in the second quarter of
    2015, an increase of 9.3%. Excluding the revenue of the community the
    Company sold in the third quarter of 2015, revenues increased $10.0
    million, or 10.4%, in the second quarter of 2016 as compared to the
    second quarter of 2015, mostly due to the acquisition of 12 communities
    during or since the second quarter of 2015. Revenue for consolidated
    communities excluding the three communities undergoing repositioning,
    lease-up or significant renovation and conversion increased 9.4% in the
    second quarter of 2016 as compared to the second quarter of 2015. These
    increases were achieved with fewer units available for lease in the
    second quarter of 2016 than the second quarter of 2015, exclusive of
    acquisitions, due to conversion and refurbishment projects currently in
    progress at certain communities.

    Operating expenses for the second quarter of 2016 were $67.2 million, an
    increase of $6.5 million from the second quarter of 2015, also primarily
    due to the acquisitions of senior living communities made during or
    since the second quarter of 2015.

    General and administrative expenses for the second quarter of 2016 were
    $5.0 million compared to $5.7 million in the second quarter of 2015.
    Excluding transaction and conversion costs of $0.4 million from the
    second quarter of 2016 and $0.8 million from the second quarter of 2015,
    general and administrative expenses decreased $0.4 million in the second
    quarter of 2016 as compared to the second quarter of 2015. As a
    percentage of revenues under management, general and administrative
    expenses, excluding transaction and conversion costs, were 4.1% in the
    second quarter of 2016 as compared to 4.8% in the second quarter of 2015.

    Income from operations for the second quarter of 2016 was $5.8 million,
    an increase of $2.1 million, or 57.4%, from the second quarter of 2015.
    This increase is primarily attributable to the Company’s acquisitions of
    senior living communities made during or since the second quarter of
    2015 and increases in the Company’s same-community revenues and
    occupancies.

    The Company recorded a net loss on a GAAP basis of $4.4 million, or
    $0.15 per share, in the second quarter of 2016. Excluding non-recurring
    or non-economic items reconciled on the final page of this release, the
    Company’s adjusted net loss was $0.1 million in the second quarter of
    2016.

    The Company’s Non-GAAP financial measures exclude three communities that
    are undergoing repositioning, lease-up of higher-licensed units or
    significant renovation and conversion (see “Non-GAAP Financial Measures”
    below).

    Adjusted EBITDAR for the second quarter of 2016 was $39.0 million, an
    increase of $3.3 million, or 9.2%, from the second quarter of 2015. The
    Adjusted EBITDAR margin for the second quarter of 2016 was 36.5%. The
    three communities undergoing repositioning, lease-up or significant
    renovation and conversion, not included in Adjusted EBITDAR, generated
    an additional $0.8 million of EBITDAR.

    Adjusted CFFO was $12.9 million, or $0.45 per share, in the second
    quarter of 2016, a 10.0% increase from $11.7 million, or $0.41 per
    share, in the second quarter of the prior year.

    Operating Activities

    Same-community results exclude the three communities previously noted
    that are undergoing repositioning, lease-up or significant renovation
    and conversion, and transaction and other one-time costs.

    Same-community revenue in the second quarter of 2016 increased 1.8%
    versus the second quarter of 2015. Due to conversion and refurbishment
    projects currently in progress at certain communities, fewer units were
    available for rent in the second quarter of this year than the second
    quarter of last year. With a like number of units available in both
    years, same-community revenue would have increased approximately 2.2% in
    the second quarter of 2016 as compared to the second quarter of the
    prior year.

    Same-community expenses increased 1.7% from the second quarter of the
    prior year, excluding a one-time workers compensation credit of $0.4
    million from the second quarter of 2015. On the same basis, labor costs,
    including benefits, increased 2.1%, food costs increased 0.6% and
    utilities increased 0.9%, all as compared to the second quarter of 2015,
    and same-community net operating income increased 1.9% in the second
    quarter of 2016 as compared to the second quarter of 2015. With a like
    number of units available in both years, same-community net operating
    income would have increased approximately 2.6% from the second quarter
    of the prior year.

    Capital expenditures for the second quarter of 2016 were $16.0 million,
    representing approximately $14.7 million of investment spending and
    approximately $1.3 million of recurring capital expenditures. If
    annualized, spending for recurring capital expenditures was
    approximately $425 per unit.

    Balance Sheet

    The Company ended the quarter with $57.7 million of cash and cash
    equivalents, including restricted cash, an increase of $12.7 million
    since March 31, 2016. During the second quarter of 2016, the Company
    received net cash proceeds of $19.5 million related to supplemental
    loans for eight communities and spent $16.0 million on capital
    improvements, which includes $3.1 million related to lease incentives
    for certain tenant leasehold improvements for which the Company expects
    to be reimbursed by its lessors. The Company received reimbursements
    totaling $3.0 million in the second quarter for capital improvements and
    expects to receive additional reimbursements as the remaining projects
    are completed.

    As of June 30, 2016, the Company financed its owned communities with
    mortgages totaling $834.4 million at interest rates averaging 4.6%. All
    of the Company’s debt is at fixed interest rates, except for one bridge
    loan totaling approximately $11.8 million at June 30, 2016, which
    matures in the third quarter of 2017. The earliest maturity date for the
    Company’s fixed-rate debt is in 2021.

    The Company’s cash on hand and cash flow from operations are expected to
    be sufficient for working capital, prudent reserves and the equity
    needed to fund the Company’s acquisition, conversion and renovation
    programs.

    Q2 2016 Conference Call Information

    The Company will host a conference call with senior management to
    discuss the Company’s second quarter 2016 financial results. The call
    will be held on Tuesday, August 2, 2016, at 5:00 p.m. Eastern Time. The
    call-in number is 913-312-1446, confirmation code 7836246. A link to a
    simultaneous webcast of the teleconference will be available at www.capitalsenior.com
    through Windows Media Player or RealPlayer.

    For the convenience of the Company’s shareholders and the public, the
    conference call will be recorded and available for replay starting
    August 2, 2016 at 8:00 p.m. Eastern Time, until August 11, 2016 at 8:00
    p.m. Eastern Time. To access the conference call replay, call
    719-457-0820, confirmation code 7836246. The conference call will also
    be made available for playback via the Company’s corporate website, www.capitalsenior.com,
    beginning August 3, 2016.

    Non-GAAP Financial Measures of Operating
    Performance

    Adjusted EBITDAR, Adjusted EBITDAR Margin, Adjusted Net Income and
    Adjusted CFFO are financial measures of operating performance that are
    not calculated in accordance with U.S. generally accepted accounting
    principles (“GAAP”). Non-GAAP financial measures of operating
    performance may have material limitations in that they do not reflect
    all of the amounts associated with our results of operations as
    determined in accordance with GAAP. As a
    result, these non-GAAP financial measures of operating performance
    should not be considered a substitute for, nor superior to, financial
    results and measures determined or calculated in accordance with GAAP.

    The Company believes that these non-GAAP performance measures are useful
    as they are performance measures used by management in identifying
    trends in day-to-day performance because they exclude the costs
    associated with acquisitions and conversions and items that do not
    reflect the ordinary performance of our operations and provide
    indicators to management of progress in achieving both consolidated and
    business unit operating performance. In addition, these measures are
    used by many research analysts and investors to evaluate the performance
    and the value of companies in the senior living industry. The Company
    strongly urges you to review on the last page of this release the
    reconciliation of income from operations to Adjusted EBITDAR and
    Adjusted EBITDAR Margin and the reconciliation of net loss to Adjusted
    Net Income and Adjusted CFFO, along with the Company’s consolidated
    balance sheets, statements of operations, and statements of cash flows.

    About the Company

    Capital Senior Living Corporation is one of the nation’s largest
    operators of residential communities for senior adults. The Company’s
    operating strategy is to provide value to residents by providing quality
    senior living services at reasonable prices. The Company’s communities
    emphasize a continuum of care, which integrates independent living,
    assisted living, and home care services, to provide residents the
    opportunity to age in place. The Company operates 126 senior living
    communities in geographically concentrated regions with an aggregate
    capacity of approximately 15,800 residents.

    Safe Harbor

    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,
    refinancing, community sales, 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 other risks and factors
    identified from time to time in our reports filed with the Securities
    and Exchange Commission.

    For information about Capital Senior Living, visit www.capitalsenior.com.

           
     
    CAPITAL SENIOR LIVING CORPORATION
    CONSOLIDATED BALANCE SHEETS
    (unaudited, in thousands, except per share data)
     
    June 30, December 31,
    2016 2015
     
    ASSETS
    Current assets:
    Cash and cash equivalents $ 44,486 $ 56,087
    Restricted cash 13,167 13,159
    Accounts receivable, net 10,427 9,254
    Federal and state income taxes receivable 95
    Property tax and insurance deposits 11,472 14,398
    Prepaid expenses and other   5,386     4,370  
    Total current assets 85,033 97,268
    Property and equipment, net 958,123 890,572
    Other assets, net   28,737     31,193  
    Total assets $ 1,071,893   $ 1,019,033  
     
    LIABILITIES AND SHAREHOLDERS’ EQUITY
    Current liabilities:
    Accounts payable $ 1,148 $ 3,362
    Accrued expenses 32,559 34,300
    Current portion of notes payable, net of deferred loan costs 17,082 13,634
    Current portion of deferred income and resident revenue 15,794 16,059
    Current portion of capital lease and financing obligations 1,214 1,257
    Federal and state income taxes payable 111
    Customer deposits   1,698     1,819  
    Total current liabilities 69,495 70,542
    Deferred income 13,165 13,992
    Capital lease and financing obligations, net of current portion 38,295 38,835
    Other long-term liabilities 10,372 4,969
    Notes payable, net of deferred loan costs and current portion 812,704 754,949
    Commitments and contingencies
    Shareholders’ equity:
    Preferred stock, $.01 par value:
    Authorized shares – 15,000; no shares issued or outstanding
    Common stock, $.01 par value:

    Authorized shares – 65,000; issued and outstanding shares – 29,998
    and 29,539 in 2016 and 2015, respectively

    305 299
    Additional paid-in capital 164,956 159,920
    Retained deficit (33,969 ) (23,539 )
    Treasury stock, at cost – 494 and 350 shares in 2016 and 2015,
    respectively
      (3,430 )   (934 )
    Total shareholders’ equity   127,862     135,746  
    Total liabilities and shareholders’ equity $ 1,071,893   $ 1,019,033  
           
     
    CAPITAL SENIOR LIVING CORPORATION
    CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
    (unaudited, in thousands, except per share data)
     

    Three Months Ended
    June 30,

    Six Months Ended
    June 30,

    2016     2015 2016     2015
    Revenues:
    Resident revenue $ 111,034 $ 101,588 $ 220,207 $ 200,228
    Expenses:
    Operating expenses (exclusive of facility lease expense and
    depreciation and amortization expense shown below)
    67,162 60,707 133,685 120,838
    General and administrative expenses 4,972 5,718 11,220 10,731
    Facility lease expense 15,445 15,298 30,650 30,554
    Stock-based compensation expense 2,490 2,717 5,003 4,444
    Depreciation and amortization   15,172     13,468     29,703     26,263  
    Total expenses   105,241     97,908     210,261     192,830  
    Income from operations 5,793 3,680 9,946 7,398
    Other income (expense):
    Interest income 19 11 35 24
    Interest expense (10,345 ) (8,673 ) (20,330 ) (17,028 )
    Write-off of deferred loan costs and prepayment premiums (871 )
    Loss on disposition of assets, net (6 ) (65 ) (37 ) (171 )
    Other income   233         233     1  
    Loss before provision for income taxes (4,306 ) (5,047 ) (10,153 ) (10,647 )
    Provision for income taxes   (140 )   (119 )   (277 )   (558 )
    Net loss $ (4,446 ) $ (5,166 ) $ (10,430 ) $ (11,205 )
    Per share data:
    Basic net loss per share $ (0.15 ) $ (0.18 ) $ (0.36 ) $ (0.38 )
    Diluted net loss per share $ (0.15 ) $ (0.18 ) $ (0.36 ) $ (0.38 )
    Weighted average shares outstanding — basic   28,926     28,705     28,838     28,636  
    Weighted average shares outstanding — diluted   28,926     28,705     28,838     28,636  
     
    Comprehensive loss $ (4,446 ) $ (5,166 ) $ (10,430 ) $ (11,205 )
       
     
    CAPITAL SENIOR LIVING CORPORATION
    CONSOLIDATED STATEMENTS OF CASH FLOWS
    (unaudited, in thousands)
     

    Six Months Ended
    June 30,

    2016     2015
    Operating Activities
    Net loss $ (10,430 ) $ (11,205 )
    Adjustments to reconcile net loss to net cash provided by operating
    activities:
    Depreciation and amortization 29,703 26,263
    Amortization of deferred financing charges 567 582
    Amortization of deferred lease costs and lease intangibles (184 ) 651
    Deferred income 44 (131 )
    Lease incentives 3,890
    Write-off of deferred loan costs and prepayment premiums 871
    Loss on disposition of assets, net 37 171
    Provision for bad debts 809 544
    Stock-based compensation expense 5,003 4,444
    Changes in operating assets and liabilities:
    Accounts receivable (94 ) (2,090 )
    Accounts receivable from affiliates 2
    Property tax and insurance deposits 2,926 1,500
    Prepaid expenses and other (1,016 ) 1,379
    Other assets (566 ) 208
    Accounts payable (2,214 ) (492 )
    Accrued expenses (1,704 ) (2,220 )
    Federal and state income taxes receivable/payable (206 ) (529 )
    Deferred resident revenue (1,136 ) (1,581 )
    Customer deposits   (121 )   (48 )
    Net cash provided by operating activities 25,308 18,319
    Investing Activities
    Capital expenditures (29,747 ) (13,540 )
    Cash paid for acquisitions (64,750 ) (74,710 )
    Proceeds from disposition of assets       35,807  
    Net cash used in investing activities (94,497 ) (52,443 )
    Financing Activities
    Proceeds from notes payable 69,892 102,332
    Repayments of notes payable (8,183 ) (66,315 )
    Increase in restricted cash (8 ) (10 )
    Cash payments for capital lease and financing obligations (583 ) (433 )
    Cash proceeds from the issuance of common stock 66 42
    Excess tax benefits on stock options exercised (27 ) 49
    Purchases of treasury stock (2,496 )
    Deferred financing charges paid   (1,073 )   (1,347 )
    Net cash provided by financing activities   57,588     34,318  
    (Decrease) Increase in cash and cash equivalents (11,601 ) 194
    Cash and cash equivalents at beginning of period   56,087     39,209  
    Cash and cash equivalents at end of period $ 44,486   $ 39,403  
    Supplemental Disclosures
    Cash paid during the period for:
    Interest $ 19,627   $ 16,112  
    Income taxes $ 546   $ 1,020  
                           
     
    Capital Senior Living Corporation
    Supplemental Information
     
    Average
    Communities Resident Capacity Average Units
    Q2 16 Q2 15 Q2 16 Q2 15 Q2 16 Q2 15
    Portfolio Data
    I. Community Ownership / Management
    Consolidated communities
    Owned 76 68 9,436 8,744 7,251 6,608
    Leased 50   50   6,333   6,333   4,918   4,907  
    Total 126 118 15,769 15,077 12,169 11,515
     
    Independent living 6,792 7,090 5,294 5,512
    Assisted living 8,977   7,987   6,875   6,003  
    Total 15,769 15,077 12,169 11,515
     
     
    II. Percentage of Operating Portfolio
    Consolidated communities
    Owned 60.3 % 57.6 % 59.8 % 58.0 % 59.6 % 57.4 %
    Leased 39.7 % 42.4 % 40.2 % 42.0 % 40.4 % 42.6 %
    Total 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 %
     
    Independent living 43.1 % 47.0 % 43.5 % 47.9 %
    Assisted living 56.9 % 53.0 % 56.5 % 52.1 %
    Total 100.0 % 100.0 % 100.0 % 100.0 %
           
     

    Capital Senior Living Corporation

    Supplemental Information (excludes communities being
    repositioned/leased up)
    Selected Operating Results Q2 16 Q2 15
    I. Owned communities
    Number of communities 74 66
    Resident capacity 8,891 8,199
    Unit capacity (1) 6,845 6,208
    Financial occupancy (2) 89.2 % 89.1 %
    Revenue (in millions) 62.2 53.4
    Operating expenses (in millions) (3) 38.5 33.1
    Operating margin 38 % 38 %
    Average monthly rent 3,397 3,220
    II. Leased communities
    Number of communities 49 49
    Resident capacity 6,107 6,107
    Unit capacity (1) 4,731 4,766
    Financial occupancy (2) 87.3 % 86.5 %
    Revenue (in millions) 44.4 44.0
    Operating expenses (in millions) (3) 24.6 24.0
    Operating margin 45 % 45 %
    Average monthly rent 3,584 3,555
    III. Consolidated communities
    Number of communities 123 115
    Resident capacity 14,998 14,306
    Unit capacity (1) 11,576 10,974
    Financial occupancy (2) 88.4 % 88.0 %
    Revenue (in millions) 106.6 97.4
    Operating expenses (in millions) (3) 63.1 57.1
    Operating margin 41 % 41 %
    Average monthly rent 3,473 3,363
    IV. Communities under management
    Number of communities 123 115
    Resident capacity 14,998 14,306
    Unit capacity (1) 11,576 10,974
    Financial occupancy (2) 88.4 % 88.0 %
    Revenue (in millions) 106.6 97.4
    Operating expenses (in millions) (3) 63.1 57.1
    Operating margin 41 % 41 %
    Average monthly rent 3,473 3,363
    V. Same communities under management
    Number of communities 110 110
    Resident capacity 13,833 13,833
    Unit capacity (1) 10,662 10,700
    Financial occupancy (2) 88.6 % 88.1 %
    Revenue (in millions) 97.1 95.4
    Operating expenses (in millions) (3) 56.7 55.7
    Operating margin 42 % 42 %
    Average monthly rent 3,426 3,372
    VI. General and Administrative expenses as a percent of Total
    Revenues under Management
    Second quarter (4) 4.1 % 4.8 %
    Year to date (4) 4.5 % 4.7 %
    VII. Consolidated Mortgage Debt Information (in thousands, except
    interest rates)
    (excludes insurance premium and auto financing)
    Total fixed rate mortgage debt 822,615 659,485
    Total variable rate mortgage debt 11,800 20,272
    Weighted average interest rate     4.6 %     4.6 %

    Contacts

    Capital Senior Living Corporation
    Carey Hendrickson, 1-972-770-5600
    Chief
    Financial Officer

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