Capital Senior Living Corporation — Q1 2012 Form 10-Q
Reporting period: Three months ended March 31, 2012; balance-sheet comparisons are with December 31, 2011. The filing’s registrant is Capital Senior Living Corporation, which reported operating senior living communities and one home care agency. It operated 90 communities in 23 states, with capacity for approximately 12,500 residents.
Financial and operating performance
| Metric | Q1 2012 | Q1 2011 / comparison |
|---|---|---|
| Total revenue | $72.2 million | $59.8 million; up 20.7% |
| Operating income | $4.0 million; 5.6% margin | $5.2 million; 8.7% margin |
| Net income | $0.14 million; $0.01 per diluted share | $1.30 million; $0.05 per diluted share |
| Operating cash flow | $8.4 million | $4.0 million |
| Capital expenditures and acquisitions | $2.3 million and $56.4 million | $1.4 million and no acquisitions reported |
| Cash and cash equivalents | $17.7 million | $22.3 million at December 31, 2011 |
| Notes payable | $279.5 million | $233.1 million at December 31, 2011 |
- Revenue growth reflected approximately $12.1 million from the Spring Meadows transaction and acquisitions, plus same-store occupancy improvement of 1.0% and average monthly rental-rate growth of 2.6%. The filing attributes a $14.1 million increase to resident and healthcare revenue, partly offset by lower management and reimbursement revenue.
- Total expenses rose 24.8% to $68.2 million, exceeding revenue growth. Higher operating costs, facility lease expense, depreciation and amortization, stock compensation, and interest expense contributed to lower operating income and net income. Operating expenses included $1.1 million of community reimbursement expense, offset by matching reimbursement revenue.
- Net cash used in investing was $58.8 million, chiefly reflecting acquisitions. Net cash from financing was $45.8 million, including $48.6 million of note proceeds; cash declined by $4.6 million during the quarter.
- Total assets were $506.5 million and shareholders’ equity was $170.2 million at March 31, 2012. Current assets were $52.9 million versus current liabilities of $38.5 million. Restricted cash was $9.1 million and should not be treated as unrestricted liquidity.
Material changes and transactions
- During the quarter, the company acquired a 97-unit Indiana community for approximately $15.3 million, four Texas communities for approximately $34.1 million, and an 82-unit Texas community for approximately $7.0 million. Purchase accounting remained preliminary.
- Acquisition financing included new Fannie Mae mortgages, generally fixed-rate, 10-year loans amortized over 30 years. The company also raised $5.6 million of supplemental debt at a fixed 4.47% rate.
- After quarter-end, the company closed the acquisition of a 128-unit Irving, Texas community for approximately $19.2 million, with approximately $11.8 million financed through Fannie Mae. A fifth property in the Esperanza transaction, in Corpus Christi, was expected to close in Q2 2012.
- Mortgage debt was reported as fixed-rate. The company said it complied with all debt covenants at March 31, 2012. Debt collateral included communities with a net book value of approximately $387.6 million.
Outlook, risks, and contingencies
- The filing provides no specific earnings or revenue guidance. Management expected cash and operating cash flows, along with potential supplemental financing, joint-venture cash flows, and asset-sale proceeds, to cover short-term working capital needs; long-term capital needs could depend on access to debt or equity markets and joint-venture funding. Management cautioned that funding availability and future cash flows were not assured.
- Management cited challenging housing, credit, and financial-market conditions and emphasized occupancy, rental rates, expense management, higher-care conversions, and acquisitions. It noted risks to acquisition financing and potential exposure to operating deficits and lease coverage requirements.
- A coverage-ratio requirement for ten leased properties had been deferred until June 30, 2012. The company said it was not in default at quarter-end and had agreed terms with the landlord for a long-term solution, subject to closing conditions. If that solution or further amendments were not finalized, the company could be deemed in default, potentially allowing the landlord to accelerate amounts due or terminate the lease.
- Future facility lease obligations were reported at $508.7 million; certain leases have contingent rent escalations. The company also had development guarantees for joint-venture communities; one remained below breakeven, and approximately $1.1 million of deficit charges had been recognized. The guarantees generally had no stated maximum future payment.
- Ordinary-course claims were described as largely insured and not expected by management to have a material adverse effect. The filing reported no material change in risk factors from the 2011 Form 10-K.
Most important facts for investors to verify
- Whether the landlord’s long-term lease solution for the ten properties became effective by June 30, 2012, and the resulting lease obligations or concessions.
- Post-quarter completion and financing of the Irving acquisition and the expected Corpus Christi transaction, including final purchase-price allocations.
- Whether acquired communities contribute sufficient operating income and cash flow to offset higher expenses, interest costs, and depreciation.
- Available unrestricted liquidity, future debt maturities and covenants, and the company’s capacity to finance further acquisitions while notes payable are increasing.
- Potential funding needs under the remaining joint-venture development guarantee and the recoverability, if any, of amounts funded.