Business context and reporting period
Capital Senior Living Corporation (the registrant named in this filing; the request identifies Sonida Senior Living, Inc.) filed this unaudited Form 10-Q for the quarter ended March 31, 2018. It operated 129 senior housing communities in 23 states, with capacity for approximately 16,500 residents: 83 owned and 46 leased.
Financial and operating results
Amounts are in U.S. dollars; financial statement figures below are converted from thousands to millions.
| Metric | Q1 2018 | Q1 2017 |
|---|---|---|
| Resident revenue | $114.6 million | $116.0 million |
| Operating income (loss) | $5.4 million | $(9.6) million |
| Operating margin | 4.7% | (8.3)% |
| Net loss | $(7.2) million | $(21.8) million |
| Net loss per share | $(0.24) | $(0.75) |
| Operating cash flow | $4.4 million | $18.1 million |
| Capital expenditures | $5.6 million | $12.7 million |
Net margin was (6.2)% versus (18.8)%. Interest expense was $12.5 million, up from $12.0 million. At March 31, unrestricted cash was $9.9 million and restricted cash was $13.4 million. Current assets were $52.4 million and current liabilities $75.1 million. Outstanding debt, excluding deferred loan costs, was $961.6 million, including $76.4 million of variable-rate debt; reported future facility lease obligations were $417.6 million. Total assets were $1.16 billion and shareholders’ equity $75.2 million.
Material changes versus the prior comparable period
- Revenue declined $1.3 million, or 1.2%. The two communities evacuated after Hurricane Harvey reduced Q1 2018 revenue by approximately $2.4 million year over year. Other communities partly offset this with $1.1 million higher revenue, associated with a 1.7% rise in average monthly rental rates.
- Excluding the two evacuated communities, weighted average financial occupancy fell to 85.9% from 87.2%.
- Operating income improved from a loss to a profit, largely because Q1 2017 included a $12.9 million facility lease termination loss tied to acquiring four previously leased communities. Lower depreciation and operating expenses also contributed; this comparison includes a significant prior-period unusual item.
- Operating cash flow fell $13.7 million year over year. Q1 2017 investing and financing cash flows included the $85.0 million acquisition and $65.0 million of related debt proceeds; Q1 2018 had no acquisition cash outlay or new note proceeds.
Outlook, commentary, risks and unusual items
Management provided no specific earnings or revenue guidance. It expected available cash, operating cash flow, potential debt financing or refinancing, and asset-sale proceeds to be sufficient for short-term working capital needs, while noting no assurance of continued cash generation or access to capital for long-term needs.
- The two Hurricane Harvey-affected Texas communities remained vacant and under repair. The company had incurred approximately $4.2 million in cleanup and repair costs through March 31, 2018, and expected additional costs. It estimated insurance would cover restoration costs; it received $2.0 million from insurers in Q1 2018, of which approximately $1.6 million related to business interruption and reduced operating expenses.
- A landlord waived a lease coverage ratio requirement for a seven-community portfolio for the period, so no cash collateral was required and the company reported compliance with lease covenants at quarter-end. The company was negotiating a longer-term remedy.
- All outstanding indebtedness was reported in compliance with covenants at March 31, 2018. Management cited financing access, economic conditions, occupancy and operating deficits, lease coverage requirements, and insurance availability as risks.
- A 1 percentage-point increase in interest rates was estimated to increase annual interest expense by approximately $0.8 million on quarter-end variable-rate debt. The company adopted the new revenue recognition standard without a material effect; it was evaluating the impact of the new lease accounting standard expected in 2019.
- Management reported normal-course legal claims, generally believed insured, and did not expect an adverse outcome to materially affect the financial statements. No material risk-factor changes from the 2017 Form 10-K were reported.
Important facts for investors to verify
- Confirm the company identity and reporting continuity: this filing is for Capital Senior Living Corporation, not Sonida Senior Living, Inc.
- Track occupancy, rental-rate growth, and the timing and cost of reopening the two Harvey-affected communities; verify insurance recovery against actual restoration and lost-income costs.
- Assess liquidity and refinancing exposure given $9.9 million of unrestricted cash, current liabilities exceeding current assets, substantial debt, and future lease commitments.
- Monitor the landlord’s long-term resolution of the lease coverage ratio requirement and continued covenant compliance.
- Separate underlying operating performance from the prior-year $12.9 million lease-termination loss when comparing results.