Capital Senior Living Corporation (now identified in the request as Sonida Senior Living, Inc.) — Q1 2013 Form 10-Q
Business context and reporting period
The filing is for the unaudited three months ended March 31, 2013, compared with the three months ended March 31, 2012. The registrant named in the filing is Capital Senior Living Corporation. At quarter-end it operated 102 senior living communities across 23 states, with capacity for approximately 13,700 residents, and one home care agency. Its portfolio included 49 owned communities, three communities with an ownership interest, and 50 leased communities.
Key financial metrics
Amounts below are in millions of dollars except per-share data and percentages.
| Metric | Q1 2013 | Q1 2012 |
|---|---|---|
| Total revenue | $86.2 | $72.2 |
| Operating income | $2.8 | $4.0 |
| Operating margin | 3.2% | 5.6% |
| Net income (loss) | $(2.1) | $0.1 |
| Diluted earnings (loss) per share | $(0.07) | $0.01 |
| Cash provided by operating activities | $5.5 | $8.4 |
| Cash used in investing activities | $(8.8) | $(58.8) |
| Cash provided by financing activities | $2.3 | $45.8 |
- At March 31, 2013, cash and cash equivalents were $17.7 million; restricted cash was $10.2 million. Current assets were $53.3 million and current liabilities $43.0 million, for working capital of approximately $10.3 million.
- Notes payable totaled $364.5 million, including $7.9 million current; capital lease and financing obligations totaled $42.8 million. The filing also reported $546.5 million of future facility lease obligations.
- Interest expense was $5.7 million, up from $3.5 million. The company reported $364.5 million of outstanding debt, all fixed-rate, and said it complied with debt and lease covenants.
Material changes versus the prior comparable period
- Revenue rose $14.0 million, or 19.4%, principally from $12.1 million of revenue contributed by communities acquired in 2012 and 2013. Same-store occupancy increased 0.2 percentage points and average monthly rental rates rose 2.0%.
- Expenses increased $15.3 million, or 22.4%. Depreciation and amortization rose $5.2 million, largely due to acquisitions and the Ventas lease transaction; interest expense rose $2.1 million, primarily reflecting acquisition-related debt.
- Operating margin declined to 3.2% from 5.6%, and the company moved from modest net income to a $2.1 million net loss.
- Operating cash flow fell $2.8 million to $5.5 million. Investing outflow was substantially lower than in Q1 2012, when acquisitions required $56.4 million; Q1 2013 included a $6.7 million acquisition and $2.1 million of capital expenditures.
Outlook, commentary, risks and unusual items
- Management expected available cash and operating cash flows, together with potential joint-venture distributions, supplemental financings and asset-sale proceeds, to fund short-term working capital needs. Long-term capital needs could depend on access to joint ventures, leases, and debt or equity markets. No numerical earnings or revenue guidance was provided.
- The March 2013 acquisition was one 64-unit assisted living community in Nebraska for $6.7 million. It was financed with $4.0 million of fixed-rate, 10-year mortgage debt at 4.66% and existing cash.
- Management cautioned that quarterly results are not necessarily indicative of full-year results. Risks cited include access to acquisition financing, economic and credit conditions, lease coverage requirements, insurance availability, licensing and operating conditions, and the ability to generate sufficient cash flow and obtain capital.
- In 2012, the Ventas lease modification involved exchanging two owned communities for one community and leasing back the exchanged properties. Because of continuing involvement, the company recorded financing obligations rather than derecognizing the assets. Management said the modified portfolio met lease coverage requirements and additional cash collateral was returned.
- Normal-course claims were described as generally insured and not expected by management to have a material adverse effect. Management reported no material change in disclosed risk factors and concluded disclosure controls were effective.
Important facts for investors to verify
- Confirm the registrant and corporate-name continuity: this 2013 filing is for Capital Senior Living Corporation, not under the Sonida Senior Living name.
- Assess whether acquisition-driven revenue growth translates into stronger operating margins and cash generation, given the quarterly loss and lower operating cash flow.
- Review debt maturities, collateral and cross-default provisions, lease commitments, and compliance with lender and landlord covenants.
- Monitor liquidity and funding needs, including the reliance on external capital for longer-term acquisitions and corporate initiatives.
- Evaluate the assumptions supporting realization of approximately $11.0 million of net deferred tax assets and the potential effect of Texas Margin Tax.