Business context and reporting period
Capital Senior Living Corporation (the issuer named in this filing) filed this unaudited Form 10-Q for the quarter ended June 30, 2016. The filing describes an operator of senior living communities: 126 communities in 23 states, with capacity for approximately 15,800 residents; 76 owned and 50 leased. The request identifies Sonida Senior Living, Inc.; that name does not match the issuer in the supplied filing and should be verified.
Financial performance and position
Amounts below are in millions of dollars except per-share data. Q2 compares the three months ended June 30; first-half compares the six months ended June 30.
| Metric | Q2 2016 | Q2 2015 | First half 2016 | First half 2015 |
|---|---|---|---|---|
| Resident revenue | $111.0 | $101.6 | $220.2 | $200.2 |
| Income from operations | $5.8 | $3.7 | $9.9 | $7.4 |
| Operating margin | 5.2% | 3.6% | 4.5% | 3.7% |
| Interest expense | $10.3 | $8.7 | $20.3 | $17.0 |
| Net loss | $(4.4) | $(5.2) | $(10.4) | $(11.2) |
| Loss per diluted share | $(0.15) | $(0.18) | $(0.36) | $(0.38) |
- Q2 consolidated occupancy was 87.7% in both years; average monthly rental rates rose 3.5%. Same-store occupancy was 87.8% in both years and same-store rental rates rose 1.9%.
- First-half operating cash flow was $25.3 million versus $18.3 million. Investing used $94.5 million, including $64.8 million for acquisitions and $29.7 million of capital expenditures. Financing provided $57.6 million. Cash and cash equivalents declined $11.6 million to $44.5 million; restricted cash was $13.2 million.
- At June 30, cash and cash equivalents were $44.5 million, current assets $85.0 million and current liabilities $69.5 million. Notes payable were $838.8 million before deferred loan costs ($829.8 million net on the balance sheet); capital lease and financing obligations totaled $39.5 million. Shareholders’ equity was $127.9 million.
- Future facility lease obligations were $546.9 million. The company reported $11.8 million of variable-rate debt and estimated that a one-percentage-point rate increase would add about $0.1 million to annual interest expense.
Changes versus prior comparable periods
- Q2 revenue increased 9.3%; management attributed most of the increase to acquired communities, with same-store rate gains also contributing. First-half revenue increased 10.0%, reflecting acquisitions and same-store rate and occupancy improvements, partly offset by dispositions.
- Q2 total expenses rose 7.5%, slower than revenue growth; operating expenses and depreciation increased, while general and administrative and stock-based compensation expenses declined. First-half expenses rose 9.0%.
- Net losses narrowed in both comparisons, but interest expense rose with additional acquisition and supplemental mortgage debt. Same-store operating costs also increased, notably wages, benefits and care-related costs.
- Two 2016 acquisitions added five communities for a combined purchase price of approximately $64.8 million: two in Pensacola, Florida, and three in Wisconsin.
Outlook, commentary, risks and unusual items
- Management stated that available cash and expected operating cash flows, supplemental financing, refinancings and asset-sale proceeds should fund short-term working capital needs. Long-term capital needs, including acquisitions, may depend on access to joint ventures and debt or equity markets; there is no assurance of adequate cash flow or financing.
- No numerical earnings or operating guidance is provided in the supplied filing text.
- In June, the company obtained $16.9 million of supplemental Fannie Mae mortgage financing at a fixed 4.98% rate, cross-collateralized and cross-defaulted with existing property debt. It also drew $2.6 million of supplemental financing at 4.25%. Acquisition loans included fixed rates of 4.38% and 4.50%.
- The company reported compliance with debt and lease covenants at June 30. It had standby letters of credit totaling $13.2 million for workers’ compensation and lease-related purposes.
- Deferred-tax valuation allowances were increased by $3.4 million in the first half, reaching $25.7 million. Management noted that realization of deferred tax assets depends on future results and expectations.
- Management said ordinary-course claims were not expected to materially affect the financial statements, based on legal advice; coverage may be subject to insurer reservations and policy exclusions. No material risk-factor changes from the 2015 Form 10-K were reported.
- Forward-looking results are subject to acquisition availability and terms, financing access, licensing and closing conditions, economic conditions, insurance availability, and accounting changes. Management reported disclosure controls were effective and no material change in internal control over financial reporting.
Important facts for investors to verify
- Confirm that this Capital Senior Living Corporation filing is the intended filing for the request naming Sonida Senior Living, Inc.
- Assess debt-service capacity and refinancing needs in light of $838.8 million of notes payable, rising interest expense and substantial lease commitments.
- Evaluate whether acquisition-led revenue growth and reported occupancy and rental-rate trends can offset rising operating costs, depreciation and financing expense.
- Review liquidity needs against acquisition spending, capital expenditures, cash decline and management’s dependence on future financing and asset-sale proceeds.
- Monitor deferred-tax asset recoverability, insurance/self-insurance reserves, lease obligations and cross-collateralized debt terms.