Business context and reporting period
This is Capital Senior Living Corporation’s Form 10-K for the fiscal year ended December 31, 2015, filed February 26, 2016. The filing identifies the registrant as Capital Senior Living Corporation, not Sonida Senior Living, Inc.; investors should confirm the relationship to the company named in the request. The company operated 121 senior living communities in 23 states, with capacity for about 15,400 residents, and one home care agency. Approximately 95% of community revenue came from private-pay sources.
Financial and operating results
| Metric | FY 2015 | FY 2014 |
|---|---|---|
| Revenue | $412.2 million | $383.9 million |
| Income from operations | $18.8 million; 4.6% margin | $13.9 million; 3.6% margin |
| Net loss | $14.3 million; $0.50 per share | $24.1 million; $0.83 per share |
| Operating cash flow | $48.9 million | $46.3 million |
| Cash and cash equivalents at year-end | $56.1 million | $39.2 million |
| Working capital | $26.7 million | $13.1 million |
| Total assets | $1.019 billion | $891.4 million |
Weighted-average occupancy for consolidated communities was 88.3%, versus 87.1%; same-store occupancy was 88.0%, versus 87.5%. Average monthly rental rates rose 6.5% across consolidated communities and 2.7% on a same-store basis. The filing does not provide a clear consolidated gross or net operating margin beyond income from operations as a percentage of revenue.
Debt, leases and liquidity
- Notes payable totaled $777.1 million before deferred loan costs; $765.3 million was fixed-rate and $11.8 million variable-rate. Weighted-average debt rate was approximately 4.6%.
- Future minimum operating and capital lease commitments totaled $573.3 million, including $65.1 million due in 2016. The company leased 50 communities and was responsible for their operating costs, maintenance, insurance and property taxes.
- Contractual cash obligations, including debt interest and leases, totaled $1.626 billion. The company reported compliance with debt and lease covenants at year-end.
- Cash used in investing was $161.4 million, including $162.5 million for acquisitions and $42.4 million in capital expenditures, partially offset by $43.5 million of asset-sale proceeds. Cash provided by financing was $129.4 million.
- Management expected cash, operating cash flow, financing and asset-sale proceeds to cover short-term working-capital needs, while longer-term capital needs could depend on access to debt or equity markets and joint ventures.
Material changes and unusual items
- Revenue increased 7.4%, primarily from 2015 acquisitions and a full year of operations for 2014 acquisitions, partly offset by community sales. Operating expenses rose 6.3%, less than revenue growth, and operating income improved.
- The company acquired several communities during 2015 and spent $162.5 million on acquisitions. It sold five communities: four in January and one in August. The Wichita sale generated a $6.4 million gain; the four-community sale produced approximately $35.7 million in net proceeds.
- Net loss narrowed from $24.1 million to $14.3 million, but interest expense rose to $35.7 million from $31.3 million as debt increased. The company also recorded $2.8 million of deferred loan-cost write-offs and prepayment premiums, versus $8.0 million in 2014.
- The 2015 third quarter reported net income of $2.9 million; the other three quarters reported net losses. Fourth-quarter revenue was $107.5 million, operating income $5.8 million and net loss $6.0 million.
- Management cited $67.2 million of cumulative accelerated amortization of acquired in-place lease intangibles through year-end as a principal contributor to the retained deficit; the remaining balance was expected to be fully amortized in 2016.
Outlook, commentary and risks
No numerical earnings or revenue guidance is provided. Management described plans for organic growth through occupancy, rent increases and unit conversions, alongside acquisitions and community expansions. Subsequent to year-end, the company acquired five communities for a combined approximately $64.8 million.
Key risks include substantial mortgage debt and lease commitments; refinancing and capital-market access; variable interest rates and lease escalators; operating-cash-flow shortfalls or covenant breaches; reliance on private-pay residents; occupancy, labor-cost and competitive pressures; and evolving regulation, licensing and liability exposure. Some debt and leases contain cross-default or cross-collateralization provisions. Management reported no material off-balance-sheet arrangements and stated that ordinary-course legal claims were not expected to materially affect the financial statements. Ernst & Young issued unqualified opinions on the financial statements and internal control over financial reporting.
Important facts for investors to verify
- Confirm the registrant’s identity and corporate relationship to Sonida Senior Living, Inc.
- Review debt maturities, collateral, cross-default terms, covenant headroom and the ability to refinance or fund lease obligations.
- Assess same-store occupancy, rate growth, labor costs and acquisition performance, including the reported operating losses from 2015 acquisitions.
- Reconcile reported net losses with operating cash flow, capital spending, acquisition spending and asset-sale gains.
- Check the effects of the large deferred-tax valuation allowance, in-place lease amortization and subsequent acquisitions on future reported earnings and liquidity.