Business context and reporting period
This is Capital Senior Living Corporation’s unaudited Form 10-Q for the quarter and six months ended June 30, 2013. The filing identifies the registrant as Capital Senior Living Corporation, not Sonida Senior Living, Inc. At quarter-end, it operated 104 senior living communities in 23 states, with capacity for approximately 13,900 residents, and one home care agency.
Financial performance and position
Amounts below are in millions of dollars except per-share data. Year-over-year comparisons are with the corresponding 2012 period.
| Metric | Three months ended June 30 | Six months ended June 30 |
|---|---|---|
| Revenue | $87.2; up 13.2% from $77.0 | $173.4; up 16.2% from $149.2 |
| Operating income / margin | $3.0 / 3.4%; prior $3.5 / 4.5% | $5.7 / 3.3%; prior $7.5 / 5.0% |
| Net loss / diluted loss per share | $(2.1) / $(0.07); prior $(0.7) / $(0.02) | $(4.1) / $(0.15); prior $(0.5) / $(0.02) |
| Interest expense | $5.7; prior $4.3 | $11.4; prior $7.9 |
For the six months, operating cash flow was $14.5 million, down from $19.3 million. Investing used $37.2 million, including $32.1 million for acquisitions; financing provided $24.3 million. Cash increased $1.6 million to $20.3 million, alongside $10.2 million of restricted cash. At June 30, current assets were $55.7 million and current liabilities $49.6 million, implying working capital of approximately $6.1 million.
Notes payable totaled $386.4 million ($12.7 million current and $373.7 million long-term); reported fair value was $357.4 million. The company separately reported $41.7 million of long-term capital lease and financing obligations and $538.8 million of future lease obligations. Total assets were $653.5 million and shareholders’ equity $168.1 million. The company reported compliance with debt and lease covenants.
Material changes versus prior comparable periods
- Revenue growth was substantially acquisition-driven: acquired communities contributed $8.6 million to quarterly resident and health care revenue growth and $20.7 million to the six-month increase. Same-store average monthly rental rates rose 1.7% for the quarter and 2.1% for the six months.
- Expenses increased faster than revenue: total expenses rose 14.5% in the quarter and 18.3% over six months. Higher operating costs, depreciation and amortization, general and administrative costs, and stock compensation contributed to lower operating margins.
- Higher debt associated with acquisitions increased interest expense by $1.4 million for the quarter and $3.5 million for the six months. The six-month net loss widened to $4.1 million from $0.5 million.
- The company acquired three communities in 2013 for a combined stated purchase price of approximately $32.1 million. It financed these and other requirements with new borrowings, repayments, and $2.8 million of common-stock issuance proceeds during the six-month period.
Outlook, risks, contingencies, and unusual items
- No specific earnings or revenue guidance is provided. Management expected cash and operating cash flows, joint venture cash flows, supplemental debt financing, and potential asset-sale proceeds to meet short-term working capital needs; it said longer-term capital needs may depend on access to joint ventures and debt or equity markets. Management cautioned that future cash generation and access to capital are not assured.
- Market and financing risks include tighter credit conditions, acquisition financing availability, operating shortfalls, lease coverage requirements, and interest-rate exposure. Of $386.4 million of debt, $381.8 million was fixed-rate and $4.6 million variable-rate. Future lease obligations were $538.8 million, with potential contingent escalations.
- The 2012 Ventas lease modification created financing obligations and lease-related accounting effects; the filing cites reduced deferred-gain amortization and lease-intangible amortization as contributors to higher lease expense. Net deferred sale/leaseback gains of approximately $21.2 million remained to be recognized as a reduction of lease expense.
- Management recorded approximately $11.8 million of net deferred tax assets and considered realization reasonably assured, with no valuation allowance. It cautioned that benefits may not be realized if actual results differ from expectations. Texas Margin Tax also affects the tax provision.
- Routine business claims were described as largely insured; management, based on counsel’s advice, did not expect adverse outcomes to materially affect the financial statements. The filing reported no material changes to previously disclosed risk factors, effective disclosure controls, and no material change in internal control over financial reporting.
Important facts for investors to verify
- Confirm the issuer identity and the relationship, if any, between this historical Capital Senior Living filing and Sonida Senior Living, Inc.
- Assess whether acquisition-led revenue growth and stated same-store rate increases translate into improved operating margins and cash generation, given expenses grew faster than revenue.
- Review debt maturities, variable-rate exposure, collateral and cross-default provisions, and the company’s ability to refinance or fund future acquisitions.
- Evaluate the sustainability of operating cash flow and liquidity after acquisition spending, including the distinction between unrestricted and restricted cash and the substantial lease commitments.
- Monitor deferred tax asset realization, lease accounting impacts, insurance and legal claims, and any changes to covenant compliance or access to capital.