Capital Senior Living Corporation — Form 10-Q, quarter ended September 30, 2020
Business context: The company operated 119 senior housing communities in 22 states, with capacity for approximately 14,700 residents: 61 owned, 34 leased and 24 managed for third parties. The filing reports results for the three and nine months ended September 30, 2020, compared with 2019. (The filing issuer is Capital Senior Living Corporation.)
Financial results and liquidity
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Total revenue | $96.1 million | $111.1 million | $303.7 million | $338.4 million |
| Net loss | $215.0 million | $20.7 million | $274.9 million | $46.2 million |
| Basic and diluted loss per share | $7.00 | $0.68 | $8.99 | $1.53 |
| Cash used in operations | Not presented separately for the quarter | $5.4 million | $0.8 million |
At September 30, cash and cash equivalents were $14.3 million, with $4.0 million restricted. Notes payable were $915.9 million net of deferred loan costs ($923.0 million excluding those costs); $263.7 million was classified as current. Total assets were $740.5 million and shareholders’ deficit was $259.0 million. Cash and restricted cash totaled $18.3 million, down from $37.1 million at year-end 2019.
For the first nine months, investing activities used $4.8 million, including $11.2 million of capital expenditures and $6.4 million of asset-sale proceeds. Financing activities used $8.6 million. Interest expense was $34.0 million for the nine months. Facility lease expense was $23.2 million, versus $42.7 million in 2019. The filing does not present a single operating-margin measure; expenses exceeded revenue by $11.9 million in Q3 and $52.6 million for the nine-month period, before other income and expense.
Material changes versus prior year
- Q3 revenue fell 13.3%; resident revenue fell 22.7% to $85.9 million. Management attributed the decline to community dispositions and transitions, lower occupancy and COVID-related restrictions on tours and admissions. Management fees and reimbursed community costs partly offset the decline.
- Financial occupancy was 76.1% in Q3 2020 versus 81.3% a year earlier; management also reported consolidated senior housing occupancy of 77.6% for Q3, down from 79.9% in Q1. Average monthly rental rates increased 2.7% year over year.
- The $215.0 million Q3 loss included a $191.0 million loss from derecognizing 18 communities under a planned transfer to Fannie Mae. The nine-month loss also included $39.2 million of noncash long-lived asset impairment charges and a $7.4 million loss on the sale of a community. These unusual items materially affect reported earnings.
- Nine-month expenses rose 3.5% despite lower revenue, primarily because of impairment and community reimbursement expenses; lower operating and lease expenses partly offset the increases.
Outlook, risks and contingencies
- Going concern: Management concluded substantial doubt exists about the company’s ability to continue as a going concern for the 12 months following issuance of the financial statements. It said its proposed mitigation plans were not probable of fully alleviating that doubt. Projected operating losses and negative operating cash flows for 2020 and 2021, COVID-19 uncertainty and limited liquidity were cited. The statements assume continued operations and include no adjustments that could result if the company cannot continue as a going concern.
- COVID-19: The company reported $4.6 million of incremental COVID-related costs through September 30, including $1.4 million in Q3, for items such as PPE, testing, cleaning and labor. Management expected these costs to continue and occupancy and revenue to face further pressure.
- Fannie Mae loans and transfer: After withholding payments on loans covering 18 communities, the company was in default and a court-appointed receiver took possession. At September 30, $217.7 million of related debt was current and $6.1 million of accrued interest was recorded. The company expected a gain when ownership transfers and related liabilities are extinguished, but timing and outcome were not assured.
- Other debt and listing risks: The company did not expect to meet a debt-service-coverage covenant on two properties and was negotiating with Fifth Third Bank; the lender could accelerate $31.5 million of debt if a default is not resolved. The NYSE had notified the company of minimum market-capitalization and share-price deficiencies. The exchange accepted a compliance plan, but delisting remained a risk.
- Liquidity measures and subsequent events: Management cited spending cuts, lease restructurings, lender and landlord forbearance, asset sales under consideration, payroll tax deferrals and potential government aid. After quarter-end, the company accepted an $8.1 million Provider Relief Fund grant, obtained additional Protective Life payment deferrals, and transferred 14 Welltower communities to new operators. These developments do not remove the disclosed going-concern uncertainty.
- No specific financial guidance was provided. Management’s outlook was conditional on occupancy recovery, successful execution of liquidity initiatives, available lender and landlord relief, asset dispositions and further government funding.
Most important facts for investors to verify
- Progress and final terms for transferring the 18 Fannie Mae communities, including debt and liability extinguishment and any resulting gain.
- Cash runway, operating cash flow, rent and debt obligations, and whether additional forbearance, refinancing, asset sales or financing is secured.
- Resolution of the Fifth Third covenant issue and status of all debt and lease defaults, waivers and cure rights.
- Occupancy, move-ins, resident revenue and COVID-related costs in subsequent quarters; distinguish reported financial occupancy from the other occupancy measure cited.
- Receipt and permitted use of the $8.1 million grant and any additional relief, and the company’s progress toward NYSE continued-listing requirements.