Capital Senior Living Corporation — Form 10-Q Summary
Period: Quarter and nine months ended September 30, 2015. The filing is by Capital Senior Living Corporation, the registrant named in the filing; it describes a U.S. senior-living operator with 120 communities in 23 states, capacity of approximately 15,300 residents, and one home-care agency. Financial statements are unaudited.
Financial performance and position
| Metric | Q3 2015 | Q3 2014 | Nine months 2015 | Nine months 2014 |
|---|---|---|---|---|
| Revenue | $104.4 million | $98.5 million | $304.6 million | $283.8 million |
| Operating income | $5.7 million | $2.7 million | $13.1 million | $8.4 million |
| Operating margin | 5.4% | 2.7% | 4.3% | 3.0% |
| Net income (loss) | $2.9 million | $(5.8) million | $(8.3) million | $(20.2) million |
| Net income (loss) per diluted share | $0.10 | $(0.20) | $(0.28) | $(0.70) |
- Q3 revenue rose 6.0%; management attributed growth primarily to acquired communities, higher occupancy, and higher rental rates. Companywide financial occupancy was 88.4%, up from 87.2%; same-store occupancy was 88.1%, versus 87.4%. Same-store average monthly rental rates increased 2.0%.
- For the nine months, revenue grew 7.4%. Expenses increased 5.9%, less than revenue, while interest expense rose to $26.0 million from $22.8 million.
- Q3 net income included a $6.4 million gain on the Sedgwick community sale. The nine-month loss also reflects interest, depreciation and amortization, and other items; reported results are not solely indicative of underlying operating performance.
- Nine-month operating cash flow was $32.5 million, versus $35.1 million in 2014. Investing used $104.7 million, including $124.5 million for acquisitions and $23.7 million in capital expenditures, partly offset by $43.5 million of asset-sale proceeds. Financing provided $67.7 million. Cash and cash equivalents declined $4.5 million to $34.7 million.
- At September 30, total assets were $959.4 million; notes payable were $711.7 million, compared with $646.6 million at year-end 2014. Cash was $34.7 million and restricted cash $13.2 million. Current assets of $73.3 million exceeded current liabilities of $66.9 million by approximately $6.4 million; restricted cash and deposits are not necessarily freely available liquidity.
Material changes and notable transactions
- During 2015, the company acquired seven communities for approximately $124.5 million in aggregate cash consideration, funded partly with property-level mortgage loans. Acquisitions increased revenue and operating costs.
- The company sold four communities in January for approximately $36.5 million and a Wichita-area community in August for approximately $14.8 million. The latter generated the $6.4 million reported gain; the buyer assumed approximately $6.8 million of mortgage debt. The gain was deferred for tax purposes through a like-kind exchange.
- Debt increased alongside acquisitions and other financings. The company reported $711.7 million of outstanding debt, including $699.9 million fixed-rate and $11.8 million variable-rate. Debt fair value was estimated at $675.5 million. Mortgages are secured by properties; facility leases also carry substantial obligations.
- Subsequent to quarter-end, on October 30, the company acquired a Virginia Beach community for approximately $38.0 million, financed with a $28.0 million fixed-rate loan at 4.25% and cash.
Outlook, risks and contingencies
- No specific earnings or revenue guidance was provided. Management said available cash and operating cash flow, supplemental debt financing, refinancing, and asset-sale proceeds were expected to meet short-term working-capital needs. Long-term capital needs, including acquisitions, may depend on access to joint ventures and debt or equity markets; management cautioned that funding and cash-flow levels are not assured.
- Risks identified include access to suitable acquisitions and financing, licensing and closing conditions, economic downturns, insurance availability and cost, and accounting changes. The company said its risk factors had not materially changed from its 2014 Form 10-K.
- Interest-rate exposure includes variable-rate debt: management estimated each one-percentage-point increase would raise annual interest expense by approximately $0.1 million based on quarter-end variable debt. Lease obligations totaled $498.8 million and may increase with CPI or operating performance.
- Ordinary-course claims are described as not expected to have a material adverse effect, although insurance coverage may be subject to reservations or exclusions. The company reported compliance with lease covenants and effective disclosure controls.
Important facts for investors to verify
- Whether same-store occupancy and rental-rate growth persisted after Q3 and translated into sustainable operating cash flow.
- Debt maturities, collateral and covenants, refinancing access, and the effect of additional acquisitions on leverage and interest costs.
- The cash-flow and earnings contribution of acquired communities, and the realized economics of the 2015 property sales and like-kind exchange.
- Availability of unrestricted liquidity after considering restricted cash, property deposits, capital spending, lease commitments, and the subsequent Virginia Beach acquisition.
- Potential realization of deferred tax assets: the filing reports a $20.3 million valuation allowance at September 30, 2015.