Filing Summary
Issuer and period: The supplied filing is Capital Senior Living Corporation’s Form 10-K for the fiscal year ended December 31, 2019, filed March 31, 2020. It is not filed under the name “Sonida Senior Living, Inc.”; the filing identifies the issuer as Capital Senior Living Corporation (NYSE: CSU).
Business context and reporting period
The company operated 126 senior housing communities in 23 states, with capacity for approximately 16,000 residents: 80 owned and 46 leased. Services include independent living, assisted living and memory care. Approximately 94.1% of 2019 community revenue came from private-pay sources. This annual filing also reports fourth-quarter results; it is not a standalone quarterly filing.
Financial results and liquidity
- Revenue: $447.1 million in 2019, down $12.9 million, or 2.8%, from $460.0 million in 2018.
- Profitability: Operating loss was $14.7 million, compared with operating income of $7.6 million in 2018; operating margin was negative 3.3%, versus positive 1.7%. Net loss narrowed to $36.0 million from $53.6 million, or $1.19 per diluted share versus $1.80 loss per share.
- Unusual gain: Net gain on asset dispositions was $36.5 million for the year. The sale of two communities generated a reported $38.8 million gain and drove fourth-quarter net income of $10.2 million; without that gain, fourth-quarter results were a loss. The annual net loss also means the fourth-quarter gain did not restore full-year profitability.
- Cash flow: Operating cash flow fell to $5.2 million from $36.9 million. Investing activities provided $47.8 million, primarily from $68.1 million of asset-sale proceeds, partly offset by $20.3 million of capital expenditures. Financing activities used $60.3 million. Cash and cash equivalents declined to $24.0 million from $31.3 million; restricted cash was $13.1 million.
- Debt and leases: Gross notes payable were $930.1 million, excluding deferred loan costs, compared with $983.2 million a year earlier. At year-end, the balance sheet reported $921.5 million of notes payable net of deferred costs and current portion. Operating lease liabilities totaled approximately $254.5 million. Scheduled note maturities included $17.8 million in 2020 and $97.1 million in 2021; minimum operating lease payments for 2020 were $63.5 million.
- Liquidity: Current assets were $63.2 million and current liabilities $129.0 million at year-end. Management expected available cash, operating cash flow, refinancing proceeds and asset sales to cover short-term working capital needs, but cautioned that financing and asset sales were not assured.
- Occupancy and rates: Excluding the two Hurricane Harvey-affected communities and three communities sold in 2019, weighted average financial occupancy declined to 82.6% from 85.0%. Average monthly rental rates increased 0.2%.
Changes versus 2018
- Lower occupancy drove a $16.1 million revenue decline at existing communities, partly offset by $3.2 million of additional revenue from the post-Harvey lease-up.
- Operating expenses rose $12.1 million, including higher insurance costs and labor, benefits and contract labor; bad-debt expense also increased. Total expenses rose 2.1% despite lower revenue.
- Net loss improved year over year, primarily reflecting a much larger disposition gain and lower loan-cost write-offs, rather than improved core operating performance.
- The company sold three communities during 2019. The Springfield and Peoria sales generated $14.8 million of net proceeds and retired $44.4 million of mortgage debt; the Kokomo sale generated $1.4 million of net proceeds and retired $3.5 million of debt.
- Adoption of lease accounting standard ASC 842 added $255.4 million of operating lease right-of-use assets and $289.5 million of lease liabilities at January 1, 2019. The company said adoption did not materially affect cash flows or covenant compliance.
Outlook, risks and unusual items
- Management described a turnaround and portfolio-optimization effort focused on improving cash-flow durability and liquidity, reducing debt and lease exposure, exiting underperforming leases, and increasing ownership. No quantified 2020 earnings or revenue guidance is provided.
- As of December 31, 2019, the company was not in compliance with certain financial covenants under its Ventas and Welltower master leases. In March 2020, it entered forbearance arrangements, with reduced monthly rent through December 2020 and release of security deposits totaling $3.9 million to Ventas and $6.5 million to Welltower. Certain lease covenants were waived during the forbearance period; future compliance was not assured.
- A March 2020 agreement with Healthpeak ended a master lease early and converted the remaining six communities to a management arrangement pending sale. The company agreed to release approximately $1.9 million of security deposits. The Ventas and Welltower arrangements also provided for potential conversion to management agreements if successor operators had not taken over by year-end 2020.
- The filing warns that COVID-19 could reduce occupancy and move-ins, increase staffing and medical-supply costs, and impair liquidity. By the filing date, in-person tours and new resident move-ins had slowed; management had curtailed discretionary spending and nonessential capital projects. The impact was uncertain.
- Other material risks include substantial debt and lease obligations, refinancing needs, variable-rate debt and LIBOR transition exposure, labor costs and staffing, resident attrition, regulatory compliance, private-pay affordability, and NYSE listing requirements. The filing reported a March 25, 2020 share price of $0.57 and market capitalization of approximately $18.2 million.
- The company reported net losses in each of 2017, 2018 and 2019. Legal claims incurred in the ordinary course were not expected by management to materially affect the financial statements if resolved adversely. The independent auditor issued unqualified opinions on the financial statements and internal control over financial reporting.
Important facts for investors to verify
- Confirm the issuer identity: the filing is for Capital Senior Living Corporation (CSU), notwithstanding the request metadata naming Sonida Senior Living, Inc.
- Assess liquidity and covenant headroom, including the 2020–2021 debt maturities, rent obligations, landlord forbearance terms and any subsequent amendments or defaults.
- Separate recurring operating performance from the $38.8 million community-sale gain; monitor occupancy, labor and insurance costs, and operating cash flow.
- Verify progress and proceeds from planned community sales, lease exits and transitions to management agreements, including whether those actions actually reduce cash obligations.
- Evaluate the actual effects of COVID-19 on occupancy, move-ins, costs, liquidity and financing access, which the filing could not quantify.