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.
  • Income from operations, including all communities, was $5.8 million, a
    $2.1 million, or 57.4%, increase from the second quarter of 2015, due
    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.

    • 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.
  • The Company’s Net Loss for the second quarter of 2016, including all
    communities, was $4.4 million, or $0.15 per share, due mostly to
    non-cash amortization of resident leases of $3.5 million associated
    with communities acquired by the Company in the previous 12 months.
    Excluding non-recurring or non-economic items, the Company’s adjusted
    net loss was $0.1 million in the second quarter of 2016.

    • 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 previously announced the expected acquisition of three
    communities for $74 million, subject to completion of due diligence
    and customary closing conditions. One of the communities to be
    purchased for approximately $18 million is currently expected to close
    in August 2016, and the other two communities totaling approximately
    $56 million are expected to close late in the third quarter or early
    in the fourth quarter. Once completed, this will bring the Company’s
    total acquisitions in 2016 to approximately $138.4 million.

“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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