Capital Senior Living Corporation — Q3 2012 Form 10-Q
Reporting period: Three and nine months ended September 30, 2012. The filing is by Capital Senior Living Corporation; the request metadata names Sonida Senior Living, Inc. As of September 30, the company operated 91 senior living communities in 23 states, with capacity for approximately 12,600 residents, and one home care agency.
Financial results
Amounts below are in millions of dollars unless otherwise noted.
| Metric | Q3 2012 | Q3 2011 | Nine months 2012 | Nine months 2011 |
|---|---|---|---|---|
| Total revenue | $78.0 | $68.2 | $227.3 | $192.4 |
| Income from operations | $3.0 | $3.9 | $10.6 | $13.5 |
| Operating margin | 3.9% | 5.7% | 4.6% | 7.0% |
| Net income (loss) | $(0.9) | $0.5 | $(1.5) | $2.7 |
| Net margin | (1.2%) | 0.7% | (0.7%) | 1.4% |
| Basic and diluted EPS | $(0.03) | $0.02 | $(0.05) | $0.10 |
- Revenue rose 14.4% in Q3 and 18.1% for the first nine months. Management attributed growth primarily to acquired communities, with same-store occupancy up 1.1% in Q3 and 1.3% year to date, and average monthly rental rates up 1.5% and 2.0%, respectively.
- Profitability weakened: nine-month expenses increased 21.2%, faster than revenue. Depreciation and amortization rose $13.0 million year over year for the nine months, primarily reflecting acquisitions. Interest expense increased $4.3 million.
- Net cash provided by operations was $37.2 million for the first nine months, versus $12.2 million in 2011. The filing attributes part of the 2012 cash flow to working-capital changes, including an $8.6 million change in income taxes receivable/payable.
- Investing cash outflow was $84.9 million, including $75.6 million for acquisitions and $9.1 million of capital expenditures. Financing provided $73.7 million, including $81.9 million of note proceeds and $6.8 million of repayments. Cash increased $26.0 million to $48.3 million.
Financial position and liquidity
- At September 30, cash and cash equivalents were $48.3 million; restricted cash was $9.2 million. Current assets were $76.8 million and current liabilities $45.2 million. The resulting $31.6 million working-capital surplus and approximately 1.7 current ratio are calculated from reported balances.
- Notes payable totaled $289.9 million, compared with $233.1 million at December 31, 2011. Capital lease and financing obligations totaled about $43.2 million, including current and long-term portions. The company reported $575.9 million of future lease obligations.
- All reported notes payable were fixed-rate at quarter-end. Management said interest-rate changes would affect debt fair values, but not earnings or cash flows; certain lease escalations can depend on CPI or operating performance.
- The company stated it was in compliance with debt and lease covenants at September 30. Management expected cash, operating cash flow, potential supplemental financing and asset-sale proceeds to meet short-term needs, while long-term acquisition and corporate funding could depend on access to joint ventures and debt or equity markets.
Material developments, outlook and risks
- Ventas lease modification: In June, the company exchanged two owned communities for one unencumbered community and leased back the two transferred properties. Ventas assumed approximately $18.3 million of mortgage debt, and approximately $3.4 million of previously posted cash collateral was returned. Lease terms were modified and extended to September 2020, with two five-year renewal options. The accounting included financing obligations and additions to property and other assets; purchase accounting remained preliminary.
- Acquisitions: 2012 acquisitions completed through September included communities purchased for approximately $75.6 million. After quarter-end, the company acquired six Indiana and Ohio communities for $62.5 million, one Batesville community for $4.0 million, and the Corpus Christi community for $6.4 million. The six-community transaction included interim variable-rate financing that management expected to refinance with long-term fixed-rate debt.
- Guarantees and contingencies: Development guarantees for three joint-venture communities generally have no stated maximum potential payment. One community had exhausted its lease-up reserve, and the company had recorded approximately $1.2 million of deficit charges under the guarantees. Claims arising in the ordinary course were considered by management, based on legal advice, not expected to materially affect the financial statements if resolved adversely.
- Outlook: No specific earnings or revenue guidance was provided. Management described a challenging senior-living, housing, credit and financial-market environment and cited continued focus on occupancy, rental rates, expense management, acquisitions and cash flow. Forward-looking results are subject to acquisition, financing, licensing, insurance, economic and other risks. The filing reported no material change in previously disclosed risk factors.
- Management concluded disclosure controls were effective and reported no material quarterly change in internal control over financial reporting. The company had not repurchased shares under its authorization during 2012.
Important facts for investors to verify
- Whether acquisition-driven revenue growth converts into improved operating margins and earnings, given costs and interest expense rose faster than revenue.
- The occupancy, rental-rate and operating performance of acquired and same-store communities, and the contribution of each to cash flow.
- Cash-flow sustainability, including the effect of working-capital and income-tax timing items.
- Debt maturities, collateral and cross-default provisions, refinancing of post-quarter interim loans, and the burden of fixed lease commitments.
- Potential cash requirements under joint-venture development guarantees and the status of the community still below breakeven.
- Final purchase-price allocations and accounting effects for the Ventas transaction and reported acquisitions.