Capital Senior Living Corporation (now Sonida Senior Living), FY2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. The filing was signed March 31, 2021. The company operated 101 senior housing communities across 22 states, with capacity for approximately 13,000 residents. It reported 60 owned communities, 17 in the process of transitioning ownership to Fannie Mae, 12 leased, and 12 managed for third parties.
Financial and operating performance
| Metric | FY2020 | FY2019 |
|---|---|---|
| Total revenue | $383.9 million | $447.1 million |
| Net loss | $295.4 million | $36.0 million |
| Operating cash flow | $(6.8) million | $5.2 million |
| Investing cash flow | $8.5 million | $47.8 million |
| Financing cash flow | $(15.9) million | $(60.3) million |
| Cash and cash equivalents at year-end | $17.9 million | $24.0 million |
| Total debt, before deferred financing costs | $915.8 million | $930.1 million |
Revenue fell 14.1% year over year. The filing attributes approximately $83.2 million of the resident-revenue decline to community dispositions, lease exits and conversions, and the Fannie Mae transition; lower occupancy and modestly lower rents also contributed. Consolidated occupancy declined from 79.9% in Q1 2020 to 73.3% in Q4. Private-pay sources represented approximately 93.6% of revenue from operated communities.
FY2020 expenses were $439.5 million, or 114.5% of revenue, versus $464.8 million, or 104.2%, in 2019. The resulting net loss included a $199.6 million loss from derecognizing assets associated with 18 communities entering receivership and $41.8 million of long-lived asset impairment charges. The company also recorded $10.7 million of net gains on lease modifications and terminations. These unusual items materially affect comparability. Interest expense was $44.6 million, down from $49.8 million.
Capital expenditures were $15.6 million, compared with $20.3 million in 2019. Cash provided by asset dispositions was $24.1 million. Cash, including restricted cash, totaled $22.9 million at year-end; restricted cash was $5.0 million.
Liquidity, debt and going concern
Current assets were $43.4 million and current liabilities were $373.1 million, a working-capital deficit of approximately $329.7 million. The balance sheet reported a shareholders’ deficit of $279.3 million. Of $915.8 million in debt, $304.2 million was classified as current. This included $218.4 million relating to the 18 Fannie Mae properties, plus $72.5 million of loans in default and callable following covenant noncompliance with Fifth Third Bank and BBVA.
Management and the auditor disclosed substantial doubt about the company’s ability to continue as a going concern. Management cited recurring and projected operating losses, working-capital deficiency, COVID-19 uncertainty, covenant defaults, and debt service and maturities. The company said it was negotiating with lenders, pursuing refinancing or extensions, reducing spending, and considering capital and asset-sale options, but management could not conclude these plans would probably alleviate the substantial doubt. The auditor’s opinion on the financial statements was unqualified, with a separate going-concern emphasis.
Material changes, outlook and risks
- COVID-19: The pandemic reduced occupancy and move-in activity and added approximately $9.4 million of direct costs in 2020. The company received $8.1 million in Phase 2 Provider Relief funds, recorded as a reduction of operating expenses, and approximately $1.9 million in state relief. It received a further $8.7 million in Phase 3 funds in January 2021, expected to be recognized in 2021, subject to program conditions. Deferred employer payroll taxes totaled $7.4 million, with half due by December 2021 and half by December 2022.
- Portfolio and leases: The company exited all triple-net leases during 2020. Its remaining 12 community leases converted to management agreements effective January 1, 2021. It sold communities in Merrillville, Indiana, and Canton, Ohio, and began transitioning 18 communities to Fannie Mae after defaults and appointment of a receiver. At year-end it continued to manage 17 of those communities; four ownership transfers were completed in Q1 2021. The company expected debt extinguishment on transferred properties to result in a later gain, but timing and amount depend on completion of transfers and liabilities being extinguished.
- Near-term demand: As of February 2021, management reported declining COVID-19 incidence across the portfolio and leads and tours at their highest levels since March 2020. First-dose vaccine clinics had been completed at all communities and second-dose clinics at 68%; in communities completing second-dose clinics, 75% of residents and 34% of staff were fully vaccinated. These are post-year-end indicators, not a formal financial forecast.
- Other risks and controls: The filing identifies competition, labor costs and staffing, regulation, private-pay affordability, litigation and insurance, interest-rate exposure, and NYSE listing compliance as risks. The NYSE had accepted the company’s plan to address its minimum market-capitalization deficiency, with a stated cure deadline of December 19, 2021. Management found disclosure controls and internal control over financial reporting ineffective due to a material weakness in controls over non-recurring transactions, including review of reconciliations and journal entries; remediation was targeted by Q4 2021.
- Capital actions: A 1-for-15 reverse stock split took effect in December 2020. The company reported no dividend and no 2020 share repurchases. It incurred net losses in each of the last three fiscal years.
Most important facts for investors to verify
- Progress and terms of refinancing or extensions for callable debt, especially the $72.5 million in Fifth Third and BBVA loans, and the resolution of Fannie Mae-related debt.
- Available unrestricted cash, cash burn, covenant status, and the company’s ability to meet debt service, maturities, and deferred payroll-tax payments.
- Actual occupancy, move-ins, resident revenue, and operating costs after year-end, including whether demand recovery persisted beyond the early-2021 indicators.
- Completion of Fannie Mae transfers and the amount and timing of any debt extinguishment gain; verify that Provider Relief funds meet program requirements.
- Remediation and testing of the material weakness, continued NYSE listing compliance, and any subsequent financing, asset sales, or other material changes.