Business Context and Reporting Period
This is Capital Senior Living Corporation’s unaudited Form 10-Q for the quarter ended March 31, 2014, comparing the first quarter of 2014 with the first quarter of 2013. The filing identifies the registrant as Capital Senior Living Corporation; the request metadata names Sonida Senior Living, Inc. At quarter-end, the company operated 113 senior living communities in 26 states, with capacity for approximately 14,700 residents, and one home care agency.
Financial and Operating Results
| Metric | Q1 2014 | Q1 2013 |
|---|---|---|
| Total revenue | $91.9 million | $86.2 million |
| Operating income | $2.6 million | $2.8 million |
| Net loss | $4.6 million | $2.1 million |
| Net loss per diluted share | $0.16 | $0.07 |
| Cash from operations | $9.3 million | $5.5 million |
| Capital expenditures | $3.1 million | $2.1 million |
- Revenue increased 6.5%, primarily reflecting communities acquired after Q1 2013. Resident and health care revenue was $90.2 million.
- Operating margin declined to 2.8% from 3.2%; net loss margin widened to 5.1% from 2.4%. Total expenses rose 6.9%, outpacing revenue growth.
- Interest expense increased to $7.1 million from $5.7 million, mainly due to debt associated with acquisitions. Operating cash flow improved, while investing cash use increased to $17.7 million, including the $14.6 million Aspen Grove acquisition.
- Cash and cash equivalents were $11.6 million at March 31, 2014, down from $13.6 million at December 31, 2013; restricted cash was $11.4 million. Total current assets were $46.1 million versus current liabilities of $53.4 million.
- Notes payable totaled $485.9 million; total liabilities were approximately $590.0 million. Debt fair value was $465.4 million. Shareholders’ equity was $154.7 million.
Material Changes Versus Prior Period
- Occupancy at consolidated communities eased to 86.5% from 86.8%; same-store occupancy was 86.1% versus 86.8%. Same-store average monthly rental rates declined 1.0%; overall average monthly rates were described as relatively unchanged.
- Same-store operating costs increased $2.7 million, including higher wages and benefits, utilities, property taxes, referral fees, and snow removal. Revenue and expenses also reflected the transition away from skilled nursing services at two communities.
- On March 26, 2014, the company acquired a 78-unit assisted living community in Michigan for $14.6 million, financing $11.0 million with a 12-year Fannie Mae loan at a fixed 5.43% rate.
- During Q1, the company recorded a $1.7 million increase in its deferred tax valuation allowance, bringing the allowance to $10.5 million. Q1 2014 included a $0.2 million tax provision, compared with a $0.7 million tax benefit in Q1 2013.
Outlook, Risks, and Unusual Items
- Management expected available cash, operating cash flows, joint-venture cash flows, financing and asset-sale proceeds to fund short-term working capital needs. Long-term capital needs, including acquisitions, may depend on access to joint ventures and debt or equity markets. No numerical earnings or revenue guidance was provided.
- Management cautioned that economic weakness, tighter credit, acquisition availability and terms, financing, licensing, insurance costs, lease coverage, and other business conditions could affect results and liquidity. It stated that cash generation and access to required capital are not assured.
- Of $485.9 million in debt, $463.4 million was fixed-rate and $22.5 million variable-rate. Future facility lease obligations were $525.5 million, with possible contingent escalations. The company reported compliance with debt and lease covenants.
- Routine-course claims and contingencies were described as not expected to have a material adverse effect, based on management’s assessment and legal advice. The CFO announced retirement effective May 16, 2014; a successor had been appointed.
- Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter. No material changes to the risk factors in the prior Form 10-K were reported.
Important Facts for Investors to Verify
- Confirm the registrant’s identity and the relationship between Capital Senior Living Corporation in this filing and Sonida Senior Living, Inc. in the request metadata.
- Assess whether occupancy, same-store rates, and operating-cost trends improve, particularly at communities being repositioned from skilled nursing to assisted living.
- Review debt maturities, refinancing capacity, variable-rate exposure, covenant headroom, and the ability to meet substantial lease obligations.
- Monitor acquisition integration and the preliminary purchase accounting for Aspen Grove, as well as the returns on recent acquisitions.
- Evaluate the assumptions supporting deferred tax asset realization and the $10.5 million valuation allowance.
- Compare subsequent liquidity and operating cash flows with management’s expectation that short-term working capital needs would be funded.