Capital Senior Living Corporation — Q1 2017 Form 10-Q
Reporting period: Three months ended March 31, 2017; comparative period is Q1 2016. The filing identifies the registrant as Capital Senior Living Corporation, although the request names Sonida Senior Living, Inc.
Business context and key metrics
The company operated 129 senior housing communities in 23 states, with capacity for approximately 16,500 residents, and one home care agency. It owned 83 communities and leased 46.
| Metric | Q1 2017 | Q1 2016 / prior balance |
|---|---|---|
| Resident revenue | $116.0 million | $109.2 million |
| Operating income (loss) | $(9.6) million | $4.2 million |
| Net loss per share, basic and diluted | $(0.75) | $(0.21) |
| Cash from operations | $18.1 million | $15.7 million |
| Capital expenditures | $12.7 million | $13.8 million |
| Cash and cash equivalents at quarter-end | $12.6 million | $34.0 million at Dec. 31, 2016 |
| Restricted cash at quarter-end | $13.3 million | $13.3 million at Dec. 31, 2016 |
| Notes payable, gross of deferred loan costs | $969.9 million | $910.2 million at Dec. 31, 2016 |
| Total shareholders’ equity | $97.0 million | $116.9 million at Dec. 31, 2016 |
Revenue increased 6.2% year over year, principally from a full quarter of contribution from 2016 acquisitions ($5.8 million) and $1.0 million of same-store growth. Consolidated financial occupancy declined to 87.1% from 88.0%, while average monthly rental rates rose 2.8%; same-store occupancy was 87.1% versus 87.9%, and same-store rental rates increased 1.9%. Operating expenses were $72.8 million, facility lease expense $14.6 million, and interest expense $12.0 million. The reported operating margin was negative 8.3%, compared with positive 3.8% in Q1 2016.
Material changes and unusual items
- On January 31, the company acquired the real estate of four communities previously leased from Ventas for $85.0 million. It recorded an $88.1 million estimated property value and a $16.0 million lease-termination financing obligation, resulting in a $12.9 million lease-termination loss.
- The acquisition was partly funded with a $65.0 million, three-year, interest-only mortgage loan at an initial variable rate of LIBOR plus 4.0%; the balance came from existing cash.
- Total expenses rose 19.6% to $125.6 million, including the lease-termination loss, higher operating costs, and increased depreciation and amortization. Interest expense increased by $2.0 million year over year.
- Investing cash outflow was $97.7 million, including the $85.0 million acquisition. Financing provided $58.2 million; cash and cash equivalents decreased by $21.4 million during the quarter.
- The company recorded a $13.1 million increase in its deferred-tax valuation allowance during Q1 2017; the allowance stood at $43.9 million at March 31. Adoption of ASU 2016-09 contributed to the adjustment.
Liquidity, outlook, and risks
Management said cash on hand, operating cash flow, supplemental debt financing, refinancing proceeds, and asset-sale proceeds were expected to cover short-term working-capital needs. Long-term capital requirements, particularly acquisitions and other initiatives, could depend on access to joint ventures and debt or equity markets. The filing gives no quantified earnings or revenue guidance and cautions that actual results may differ materially from forward-looking statements.
Debt included $893.2 million of fixed-rate and $76.7 million of variable-rate instruments. Management estimated that a one-percentage-point increase in interest rates would add approximately $0.8 million to annual interest expense. Future facility lease obligations were $464.5 million; some rents may increase with CPI or operating performance. Risks cited include financing availability and terms, acquisition opportunities, economic downturns, licensing and insurance conditions, and lease coverage pressures. The company reported compliance with its debt and lease covenants. Management considered ordinary-course claims not expected to have a material adverse effect, and reported no material changes to the previously disclosed risk factors.
Important facts for investors to verify
- Net-loss discrepancy: The financial statements report Q1 2017 net loss of $21.842 million and loss before taxes of $21.719 million, while the MD&A results table reports net loss of $21.279 million and loss before taxes of $21.156 million. The MD&A narrative gives net loss of $21.8 million. Confirm the correct figures against the filed statements and XBRL.
- Assess whether occupancy declines and higher same-store operating costs, including costs associated with residents requiring higher levels of care, continue or reverse.
- Review near-term liquidity and refinancing exposure given $12.6 million of unrestricted cash, substantial debt, and the new variable-rate, three-year loan.
- Evaluate the acquisition economics, ongoing rent obligations for the remaining Ventas-leased communities, and the related $12.9 million reported loss.
- Monitor deferred-tax asset realizability and the potential effect of further valuation-allowance changes.