Capital Senior Living Corporation Reports Third Quarter 2015 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 third quarter of 2015. Company
highlights for the third quarter include:

Operating and Financial Summary (all
amounts in this operating and financial summary exclude four communities
that are undergoing repositioning, lease-up or significant renovation
and conversion, unless otherwise noted; also, see Non-GAAP Financial
Measures
below)

  • Revenue in the third quarter of 2015, including all communities, was
    $104.4 million, a $5.9 million, or 6.0%, increase from the third
    quarter of 2014.
  • Occupancy for the Company’s consolidated communities was 88.9% in the
    third quarter of 2015, an increase of 110 basis points from the third
    quarter of 2014 and 90 basis points from the second quarter of 2015.
    Same-community occupancy was 88.6% for the third quarter of 2015, a 60
    basis point increase from the third quarter of 2014 and a 70 basis
    point increase from the second quarter of 2015.
  • Average monthly rent for the Company’s consolidated communities in the
    third quarter of 2015 was $3,382, an increase of $171 per occupied
    unit, or 5.3%, as compared to the third quarter of 2014, and a 50
    basis point improvement from the second quarter of 2015.
    Same-community average monthly rent was $3,338, an increase of $58 per
    occupied unit, or 1.8%, from the third quarter of 2014.
  • Adjusted EBITDAR was $36.4 million in the third quarter of 2015, an
    8.7% increase from the third quarter of 2014. The four communities
    undergoing repositioning, lease-up or significant renovation and
    conversion generated an additional $0.8 million of EBITDAR. The
    Company’s Adjusted EBITDAR margin was 36.5% for the third quarter of
    2015, a record-high third quarter margin for the Company and an
    increase of 90 basis points versus the third quarter of the prior year.
  • Adjusted Cash From Facility Operations (“CFFO”) was $12.0 million, or
    $0.42 per share, in the third quarter of 2015, a 14.4% increase versus
    the third quarter of the prior year. Beginning in 2015, the Company no
    longer includes the change in prepaid resident rent as a component of
    Adjusted CFFO as it is a non-economic timing item. On a comparable
    basis, Adjusted CFFO was $10.5 million, or $0.37 per share in the
    third quarter of 2014.
  • The Company’s Net Income for the third quarter of 2015, including all
    communities, was $2.9 million, or $0.10 per share, due mostly to a
    $6.4 million gain on the sale of a community partially offset by
    non-cash amortization of resident leases of $3.0 million associated
    with communities acquired by the Company in the previous 12 months.
    Adjusted Net Income was $0.3 million, or $0.01 per share, for the
    third quarter of 2015.
  • The Company completed the acquisition of three communities during the
    third quarter of 2015 for a combined purchase price of approximately
    $49.8 million. These communities are expected to generate incremental
    annual CFFO of approximately $0.07 per share.
  • The Company announced today that it closed on the acquisition of
    another community on October 30, 2015, for a purchase price of
    approximately $38.0 million. This community expands our operations in
    Virginia and is expected to generate incremental annual CFFO of
    approximately $0.04 per share.

“We continue to demonstrate the advantages of our differentiated
business strategy as we successfully execute on the multiple avenues of
growth under our straightforward strategic plan. This produced
substantial growth in all of our key metrics in the third quarter,
including revenue, occupancy, average monthly rent, NOI, Adjusted
EBITDAR and Adjusted CFFO as compared to the prior year,” said Lawrence
A. Cohen, Chief Executive Officer of the Company. “Our occupancy gains
continue to outpace the industry, with same-community occupancy
increasing 70 basis points from the second quarter of 2015 and 60 basis
points from the third quarter of 2014. We continue to see limited new
supply and construction in our local markets. Also, our conversions of
independent living units to assisted living and memory care units
continue to show timely progress.

“Complementing this growth is a robust pipeline that allows us to
continue our disciplined and strategic acquisition program that
increases our ownership of high-quality senior living communities in
geographically concentrated regions and generates meaningful increases
in CFFO, earnings and real estate value. We have closed on nine such
communities so far this year, and we continue to pursue additional
opportunities.

“We believe that we are well positioned to make sustainable meaningful
gains in shareholder value as a substantially all private-pay business
in an industry that benefits from need-driven demand, limited new supply
in our local markets, a strong housing market and an improving economy.”

Recent Investment Activity

  • In the third quarter of 2015, the Company completed acquisitions of
    three senior living communities for a combined purchase price of $49.8
    million. These communities expand the Company’s operations in Ohio,
    Indiana and Illinois, and are comprised of 270 units offering
    independent living, assisted living and memory care services.

Combined highlights of the transactions include:

  • Increases annual Adjusted CFFO by approximately $2.1 million, or $0.07
    per share.
  • Adds approximately $1.0 million to earnings, or $0.03 per share.
  • Increases annual revenue by approximately $11.5 million.
  • Average monthly rents for the communities are approximately $3,850.

The communities were financed with an aggregate of approximately $34.3
million of non-recourse 10-year mortgage debt at an average fixed
interest rate of 4.39%. Initial funding for one of the acquisitions was
purposely limited to accommodate a like-kind exchange structure for tax
purposes related to the Company’s sale of its community in Kansas.
Additional funding of approximately $2.6 million is expected in the
first half of 2016 at a fixed interest rate of 4.25%.

  • The Company closed on the sale of its only community in Kansas during
    the third quarter for approximately $14.8 million. The transaction was
    structured as a like-kind exchange with the net proceeds accretively
    reinvested in one of the communities the Company acquired in the third
    quarter.
  • In September 2015, the Company refinanced a bridge loan on a community
    that was originally set to mature in October 2015. The new mortgage is
    $8.4 million with a 4.7% fixed interest rate and matures in October
    2025. The new mortgage replaced $8.5 million of variable-rate debt
    with an interest rate of approximately 3.9%.
  • Subject to completion of due diligence and customary closing
    conditions, acquisitions of three additional communities totaling
    approximately $17 million are expected to close by the end of December
    2015, which will bring the Company’s total acquisitions in 2015 to
    approximately $180 million. The Company is conducting due diligence on
    additional acquisitions of high-quality senior living communities in
    states with extensive existing operations.

Financial Results – Third Quarter

For the third quarter of 2015, the Company reported revenue of $104.4
million, compared to revenue of $98.5 million in the third quarter of
2014, an increase of 6.0%. Excluding the revenue of the five communities
the Company has sold since the third quarter of 2014 from all
appropriate periods, revenues increased $8.9 million, or 9.4%, in the
third quarter of 2015 as compared to the third quarter of 2014, mostly
due to the acquisition of 12 communities during or after the third
quarter of 2014. Operating expenses for the third quarter of 2015 were
$63.3 million, an increase of $3.5 million from the third quarter of
2014.

Revenue for consolidated communities excluding the four communities
undergoing repositioning, lease-up or significant renovation and
conversion increased 6.0% in the third quarter of 2015 as compared to
the third quarter of 2014. Net operating income for these communities
increased 6.4% in the third quarter of 2015 as compared to the third
quarter of 2014. These increases were achieved with less units available
for lease in the third quarter of 2015 than the third quarter of 2014
due to conversion and refurbishment projects currently in progress at
certain communities during the third quarter of 2015.

General and administrative expenses for the third quarter of 2015 were
$4.8 million, which includes $0.5 million of transaction and other
one-time costs. Excluding transaction and other one-time costs, general
and administrative expenses decreased $0.6 million in the third quarter
of 2015 as compared to the third quarter of 2014. As a percentage of
revenues under management, general and administrative expenses,
excluding transaction and other one-time costs, were 4.1% in the third
quarter of 2015 as compared to 4.9% in the third quarter of 2014.

The Company’s Non-GAAP financial measures exclude four communities that
are undergoing repositioning, lease-up of higher-licensed units or
significant renovation and conversion (see “Non-GAAP Financial Measures”
below). Also, as previously noted, beginning in 2015, the Company no
longer includes the change in prepaid resident rent as a component of
Adjusted CFFO as it is a non-economic timing item.

Adjusted EBITDAR for the third quarter of 2015 was approximately $36.4
million, an increase of $2.9 million, or 8.7%, from the third quarter of
2014. This does not include EBITDAR of $0.8 million related to four
communities undergoing repositioning, lease-up or significant renovation
and conversion. The Adjusted EBITDAR margin for the third quarter of
2015 was 36.5%, which is a record-high third quarter margin for the
Company and an increase of 90 basis points from the third quarter 2014
margin of 35.6%.

The Company recorded net income of $2.9 million in the third quarter.
Excluding non-recurring or non-economic items reconciled on the final
page of this release, the Company’s adjusted net income was $0.3
million, or $0.01 per share, in the third quarter of 2015. Adjusted CFFO
was $12.0 million, or $0.42 per share, in the third quarter of 2015, a
14.4% increase from the third quarter of the prior year. On a comparable
basis, Adjusted CFFO was $10.5 million, or $0.37 per share, in the third
quarter of 2014.

Operating Activities

Same-community results exclude the four 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 third quarter of 2015 increased 1.5%
versus the third quarter of 2014. Due to conversion and refurbishment
projects currently in progress at certain communities, fewer units were
available for rent in the third quarter of this year as compared to the
third quarter of last year. With a like number of units available in
both years, same-community revenue would have increased approximately
2.5% in the third quarter of 2015 as compared to the third quarter of
the prior year. Same-community expenses increased 1.4% from the third
quarter of the prior year. Labor costs, including benefits, increased
0.8%, while food costs decreased 1.5% and utilities increased 1.4% in
the third quarter of 2015 as compared to the third quarter of the prior
year. Same-community net operating income increased 1.7% in the third
quarter of 2015 as compared to the third quarter of 2014. With a like
number of units available in both years, same-community net operating
income would have increased approximately 3.5% from the third quarter of
the prior year.

Capital expenditures for the third quarter of 2015 were $10.1 million,
representing approximately $8.6 million of investment spending and
approximately $1.5 million of recurring capital expenditures. If
annualized, spending for recurring capital expenditures was
approximately $505 per unit.

Balance Sheet

The Company ended the quarter with $47.8 million of cash and cash
equivalents, including restricted cash, a decrease of $3.9 million since
June 30, 2015. During the third quarter of 2015, the Company invested
$15.5 million of cash as equity to complete the acquisitions of three
communities and spent $10.1 million on capital improvements.

As of September 30, 2015, the Company financed its owned communities
with mortgages totaling $709.5 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 September 30, 2015,
at a current variable rate of approximately 4.65%. Otherwise, the
Company has no mortgage maturities before the third quarter of 2017.

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 program.

Q3 2015 Conference Call Information

The Company will host a conference call with senior management to
discuss the Company’s third quarter 2015 financial results. The call
will be held on Tuesday, November 3, 2015, at 5:00 p.m. Eastern Time.
The call-in number is 913-312-0720, confirmation code 1077698. 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
November 3, 2015 at 8:00 p.m. Eastern Time, until November 12, 2015 at
8:00 p.m. Eastern Time. To access the conference call replay, call
719-457-0820, confirmation code 1077698. The conference call will also
be made available for playback via the Company’s corporate website, www.capitalsenior.com,
beginning November 4, 2015.

Non-GAAP Financial Measures

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 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 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 measures are useful in identifying trends in
day-to-day performance because they exclude items that are of little or
no significance to operations and provide indicators to management of
progress in achieving optimal 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 the reconciliation of
net 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 121 senior living
communities in geographically concentrated regions with an aggregate
capacity of approximately 15,400 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
(in thousands, except per share data)
 
    September 30,     December 31,
  2015     2014  
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 34,687 $ 39,209
Restricted cash 13,155 12,241
Accounts receivable, net 8,272 5,903
Accounts receivable from affiliates 3 5
Federal and state income taxes receivable 137
Deferred taxes 129 460
Assets held for sale 35,761
Property tax and insurance deposits 12,163 12,198
Prepaid expenses and other   4,721     6,797  
Total current assets 73,267 112,574
Property and equipment, net 848,019 747,613
Other assets, net   38,117     37,514  
Total assets $ 959,403   $ 897,701  
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 694 $ 2,540
Accounts payable to affiliates 7
Accrued expenses 34,837 32,154
Notes payable of assets held for sale 15,076
Current portion of notes payable 14,055 33,664
Current portion of deferred income and resident revenue 14,224 14,603
Current portion of capital lease and financing obligations 1,145 1,054
Federal and state income taxes payable 219
Customer deposits   1,950     1,499  
Total current liabilities 66,905 100,816
Deferred income 14,494 15,949
Capital lease and financing obligations, net of current portion 39,228 40,016
Deferred taxes 129 460
Other long-term liabilities 1,326 1,426
Notes payable, net of current portion 697,687 597,860
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 – 29,519
and 29,097 in 2015 and 2014, respectively

299 294
Additional paid-in capital 157,858 151,069
Retained deficit (17,589 ) (9,255 )
Treasury stock, at cost – 350 shares   (934 )   (934 )
Total shareholders’ equity   139,634     141,174  
Total liabilities and shareholders’ equity $ 959,403   $ 897,701  
 
 
CAPITAL SENIOR LIVING CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(LOSS)
(unaudited, in thousands, except per share data)
 
    Three Months Ended     Nine Months Ended
September 30, September 30,
  2015         2014     2015         2014  
Revenues:
Resident and healthcare revenue $ 104,420 $ 98,466 $ 304,648 $ 280,240
Affiliated management services revenue 415
Community reimbursement revenue       17         3,110  
Total revenues 104,420 98,483 304,648 283,765
Expenses:
Operating expenses (exclusive of facility lease expense and
depreciation and amortization expense shown below)
63,649 59,992 184,487 171,268
General and administrative expenses 4,751 5,515 15,482 15,137
Facility lease expense 15,321 14,841 45,875 44,524
Stock-based compensation expense 2,301 1,599 6,745 5,676
Depreciation and amortization 12,722 13,840 38,985 35,607
Community reimbursement expense       17         3,110  
Total expenses   98,744     95,804     291,574     275,322  
Income from operations 5,676 2,679 13,074 8,443
Other income (expense):
Interest income 12 12 36 40
Interest expense (8,994 ) (8,255 ) (26,022 ) (22,785 )
Write-off of deferred loan costs and prepayment premiums (102 ) (973 ) (6,979 )
Joint venture equity investment valuation gain 1,519
Gain (Loss) on disposition of assets, net 6,418 (1 ) 6,247 (11 )
Equity in earnings of unconsolidated joint ventures, net 105
Other income       5     1     22  
Income (Loss) before provision for income taxes 3,010 (5,560 ) (7,637 ) (19,646 )
Provision for income taxes   (139 )   (199 )   (697 )   (579 )
Net income (loss) $ 2,871   $ (5,759 ) $ (8,334 ) $ (20,225 )
Per share data:
Basic net income (loss) per share $ 0.10   $ (0.20 ) $ (0.28 ) $ (0.70 )
Diluted net income (loss) per share $ 0.10   $ (0.20 ) $ (0.28 ) $ (0.70 )
Weighted average shares outstanding — basic   28,732     28,371     28,668     28,273  
Weighted average shares outstanding — diluted   28,733     28,371     28,668     28,273  
 
Comprehensive income (loss) $ 2,871   $ (5,759 ) $ (8,334 ) $ (20,225 )
 
 
CAPITAL SENIOR LIVING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
 
    Nine Months Ended
September 30,
  2015         2014  
Operating Activities
Net loss $ (8,334 ) $ (20,225 )
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation and amortization 38,985 35,607
Amortization of deferred financing charges 853 999
Amortization of deferred lease costs and lease intangibles 987 922
Deferred income (308 ) (220 )
Write-off of deferred loan costs and prepayment premiums 973 6,979
Joint venture equity investment valuation gain (1,519 )
(Gain) Loss on disposition of assets, net (6,247 ) 11
Equity in earnings of unconsolidated joint ventures (105 )
Provision for bad debts 873 517
Stock-based compensation expense 6,745 5,676
Changes in operating assets and liabilities:
Accounts receivable (3,240 ) (2,481 )
Accounts receivable from affiliates 2 410
Property tax and insurance deposits 35 376
Prepaid expenses and other 2,076 3,080
Other assets (324 ) 756
Accounts payable (1,853 ) 249
Accrued expenses 2,683 3,203
Federal and state income taxes receivable/payable (356 ) (91 )
Customer deposits (1,526 ) 824
Deferred resident revenue   451     117  
Net cash provided by operating activities 32,475 35,085
Investing Activities
Capital expenditures (23,665 ) (13,394 )
Cash paid for acquisitions (124,460 ) (145,555 )
Proceeds from disposition of assets 43,460 4
Proceeds from SHPIII/CSL Transaction 2,532
Distributions from unconsolidated joint ventures       102  
Net cash used in investing activities (104,665 ) (156,311 )
Financing Activities
Proceeds from notes payable 150,034 267,685
Repayments of notes payable (78,705 ) (128,553 )
Increase in restricted cash (914 ) (43 )
Cash payments for capital lease and financing obligations (697 ) (630 )
Cash proceeds from the issuance of common stock 42 169
Excess tax benefits on stock option exercised 7 (82 )
Deferred financing charges paid   (2,099 )   (3,115 )
Net cash provided by financing activities   67,668     135,431  
(Decrease) Increase in cash and cash equivalents (4,522 ) 14,205
Cash and cash equivalents at beginning of period   39,209     13,611  
Cash and cash equivalents at end of period $ 34,687   $ 27,816  
Supplemental Disclosures
Cash paid during the period for:
Interest $ 24,707   $ 20,873  
Income taxes $ 1,028   $ 714  
Non-cash transactions:
Assumption of debt related to disposition of assets (Sedgwick Sale
Transaction)
$ 6,764   $  
 
 
Capital Senior Living Corporation
Supplemental Information
                       
Average
Communities Resident Capacity Average Units
Q3 15 Q3 14 Q3 15 Q3 14 Q3 15 Q3 14
Portfolio Data
I. Community Ownership / Management
Consolidated communities
Owned 70 66 8,945 8,718 6,741 6,771
Leased 50   50   6,333   6,333   4,931   4,990  
Total 120 116 15,278 15,051 11,672 11,761
 
Independent living 6,984 7,597 5,458 6,171
Assisted living 8,294   7,454   6,214   5,590  
Total 15,278 15,051 11,672 11,761
 
 
II. Percentage of Operating Portfolio
Consolidated communities
Owned 58.3 % 56.9 % 58.5 % 57.9 % 57.8 % 57.6 %
Leased 41.7 % 43.1 % 41.5 % 42.1 % 42.2 % 42.4 %
Total 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 %
 
Independent living 45.7 % 50.5 % 46.8 % 52.5 %
Assisted living 54.3 % 49.5 % 53.2 % 47.5 %
Total 100.0 % 100.0 % 100.0 % 100.0 %

Contacts

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

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