Capital Senior Living Corporation — Q3 2017 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2017. The filing issuer is Capital Senior Living Corporation; the supplied company metadata names Sonida Senior Living, Inc. The company operated 129 senior housing communities in 23 states, with capacity for approximately 16,500 residents, and one home care agency.
Financial performance and position
Dollar amounts are in millions except per-share data, occupancy and rates.
| Metric | Q3 2017 | Q3 2016 | Nine months 2017 | Nine months 2016 |
|---|---|---|---|---|
| Revenue | $117.3 | $111.4 | $350.0 | $331.6 |
| Operating income (loss) | $4.5 | $3.7 | ($0.4) | $13.6 |
| Net loss | ($8.1) | ($7.1) | ($37.8) | ($17.5) |
| Net loss per share | ($0.28) | ($0.24) | ($1.28) | ($0.61) |
| Operating margin | 3.8% | 3.3% | (0.1%) | 4.0% |
| Net loss margin | (6.9%) | (6.3%) | (10.8%) | (5.4%) |
- Occupancy and pricing: Weighted average financial occupancy was 86.6%, down from 87.8% in Q3 2016. Average monthly rental rates rose 3.4% across consolidated communities and 2.7% on a same-store basis.
- Cash flow: Nine-month operating cash flow was $42.3 million, compared with $36.6 million a year earlier. Investing used $115.1 million, including $85.0 million for an acquisition and $30.2 million of capital expenditures. Financing provided $48.0 million. Cash and cash equivalents fell by $24.8 million to $9.2 million.
- Liquidity and balance sheet: At September 30, cash was $9.2 million and restricted cash was $13.4 million. Current assets were $48.1 million versus current liabilities of $75.7 million. Total assets were $1.172 billion and shareholders’ equity was $84.9 million, down from $116.9 million at year-end 2016.
- Debt and interest: Gross notes payable, excluding deferred loan costs, were $961.4 million; the filing reports $76.6 million of variable-rate and $884.8 million of fixed-rate debt. Nine-month interest expense increased to $36.9 million from $31.0 million. A one-percentage-point increase in rates would add approximately $0.8 million to annual interest expense at the reported variable-debt balance. Management reported compliance with debt and lease covenants.
Changes and material developments
- Q3 revenue grew 5.3%; the nine-month increase was 5.5%. Acquisitions contributed $4.5 million of Q3 and $14.7 million of nine-month revenue; same-store rental-rate increases also contributed. Higher operating costs, including labor and contract staffing, offset revenue growth.
- Nine-month net loss widened to $37.8 million from $17.5 million. Expenses included a $12.9 million loss on terminating lease arrangements associated with buying four previously leased communities. Interest expense and depreciation also increased.
- On January 31, 2017, the company acquired the real estate of four communities from Ventas for $85.0 million, funded in part by a $65.0 million, three-year, interest-only bridge loan at an initial variable rate of LIBOR plus 4.0%. The transaction reduced facility lease expense but generated the one-time termination loss.
- The deferred tax asset valuation allowance increased by $19.1 million during the first nine months, to $50.0 million. This reflects management’s assessment of the portion of deferred tax assets more likely than not to be realized; the filing notes that realization depends on future results.
Outlook, risks and unusual items
- No specific earnings or revenue guidance is provided. Management expected available cash, operating cash flows, debt financing/refinancing and asset-sale proceeds to support short-term working capital needs; longer-term capital needs could depend on access to joint ventures and debt or equity markets. Management cautioned that future cash flows and access to capital are not assured.
- Hurricane Harvey forced two southeast Texas communities to be fully vacated; both remained closed and under repair at quarter-end. The company had incurred approximately $0.4 million in cleanup and repair costs, recorded a $0.1 million deductible, and received approximately $1.0 million in insurance proceeds, including $0.7 million for business interruption. Management expected insurance to cover restoration costs, but repairs and reopening remained outstanding.
- Other stated risks include interest-rate exposure, lease obligations and escalators, staffing and operating costs, acquisition and financing availability, insurance costs, and potential operating deficits under lease coverage requirements. The company reported no material change to previously disclosed risk factors and said disclosure controls were effective.
Important facts for investors to verify
- Progress, reopening dates, occupancy recovery and final insurance reimbursement for the two Harvey-affected communities.
- Whether revenue and rental-rate growth can offset occupancy weakness and rising labor, staffing, interest and depreciation costs.
- Debt maturities, refinancing capacity and the terms and extension or repayment plan for the $65.0 million variable-rate bridge loan.
- Cash availability after restricted balances, capital spending and debt service, given the decline in unrestricted cash and current liabilities exceeding current assets.
- Future realization of deferred tax assets and the potential effect of continued losses on the valuation allowance.