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Capital Senior Living Corporation Reports Second Quarter 2018 Results

DALLAS, July 31, 2018 (GLOBE NEWSWIRE) -- Capital Senior Living Corporation (the “Company”) (NYSE:CSU), one of the nation’s largest operators of senior housing communities, today announced operating and financial results for the second quarter 2018. 

“Our financial results for the second quarter were impacted by a challenging operating environment and higher than anticipated attrition rates, especially towards the end of April and early May, which resulted in lower than expected occupancy and average rents,” said Lawrence A. Cohen, Chief Executive Officer of the Company.  “To address this, we implemented one-month specials in certain locations as well as targeted discounts, which successfully stabilized occupancy but had a resulting negative impact on our reported results. We expect the challenging competitive environment and its associated impacts on our results to continue through the balance of the year.  As a result, we are reducing our full year guidance for 2018.”

Mr. Cohen continued, “We are disappointed with our second quarter results, and have put in place immediate action plans to increase revenues and reduce expenses.  Beyond these immediate steps, we continue to implement a number of broad-based operational improvements to strengthen our platform and processes.  The seniors housing industry is in the midst of a timing gap between the growth of the senior population and a decline in construction starts.  Fundamentally, Capital Senior Living is well positioned to take advantage of the expected improvement in supply/demand dynamics.  With real estate ownership a core element of our differentiated strategy, we believe that the intrinisic value of our real estate will ultimately provide a multiplier effect when a recovery in the market and the impact from our operational initiatives take hold.  In the meantime, we are moving forward with a focus on executing our comprehensive strategy, controlling costs and maximizing the value of our owned real estate.” 

Operating and Financial Summary (all amounts in this operating and financial summary exclude two communities that are undergoing lease-up or significant renovation and conversion, unless otherwise noted; also, see Non-GAAP Financial Measures below and reconciliation of Non-GAAP measures to the most directly comparable GAAP measure on the final page of this release.) 

  • Revenue in the second quarter of 2018, including all communities, was $114.6 million, a $2.1 million, or 1.8%, decrease from the second quarter of 2017.  The second quarter of 2018 includes no revenue from the Company’s two communities impacted by Hurricane Harvey in late August 2017.  Revenue for these two communities was $2.3 million in the second quarter of 2017.    
     
    • Revenue for consolidated and same communities, which exclude two communities undergoing lease-up or significant renovation and conversion and the Company’s two communities impacted by Hurricane Harvey, was $113.2 million in the second quarter of 2018, an increase of 0.1% as compared to the second quarter of 2017.
       
    • Occupancy for consolidated and same communities was 85.5% in the second quarter of 2018, a decrease of 60 basis points from the first quarter of 2018 and a decrease of 100 basis points from the second quarter of 2017.
       
    • Average monthly rent for consolidated and same communities was $3,619, an increase of $35 per occupied unit, or 1.0%, as compared to the second quarter of 2017.
       
  • Income from operations, including all communities, was $3.6 million in the second quarter of 2018 compared to $4.7 million in the second quarter of 2017.
     
  • The Company’s Net Loss for the second quarter of 2018, including all communities, was $9.1 million. 
     
    • Excluding items noted and reconciled on the final page of this release, the Company’s adjusted net loss was $5.0 million in the second quarter of 2018.
       
    • Adjusted EBITDAR was $38.4 million in the second quarter of 2018 compared to $38.3 million in the second quarter of 2017. Adjusted EBITDAR is a financial valuation measure, rather than a financial performance measure, used by management and others to evaluate the value of companies in the senior living industry. 
       
    • Adjusted Cash From Facility Operations (“CFFO”) was $10.6 million in the second quarter of 2018 compared to $11.5 million in the second quarter of 2017. 

Financial Results - Second Quarter

For the second quarter of 2018, the Company reported revenue of $114.6 million, compared to revenue of $116.7 million in the second quarter of 2017.  Revenue for consolidated communities excluding the two communities undergoing significant renovation and conversion, and the two Houston communities impacted by Hurricane Harvey, increased 0.1% in the second quarter of 2018 as compared to the second quarter of 2017. 

Operating expenses for the second quarter of 2018 were $73.0 million, a decrease of $0.3 million from the second quarter of 2017.  Operating expenses include a $1.6 million business interruption insurance credit related to the Company’s two Houston communities impacted by Hurricane Harvey to offset the lost revenues and continuing expenses, and to restore the communities’ net income for the second quarter of 2018 based on an approximate average of the communities’ net income in the seven months of 2017 prior to the hurricane.

General and administrative expenses for the second quarter of 2018 were $5.7 million.  This compares to general and administrative expenses of $6.1 million in the second quarter of 2017.  Excluding transaction and conversion costs in both periods and a benefit reserve adjustment related to the Affordable Care Act in 2018, general and administrative expenses decreased $1.1 million in the second quarter of 2018 as compared to the second quarter of 2017.  As a percentage of revenues under management, general and administrative expenses, excluding transaction and conversion costs, were 3.9% in the second quarter of 2018 compared to 4.8% in the second quarter of 2017. 

Income from operations for the second quarter of 2018 was $3.6 million.  The Company recorded a net loss on a GAAP basis of $9.1 million in the second quarter of 2018.  Excluding items noted and reconciled on the final page of this release, the Company’s adjusted net loss was $5.0 million in the second quarter of 2018. 

The Company’s Non-GAAP financial measures exclude two communities that are undergoing significant renovation and conversion (see “Non-GAAP Financial Measures” below), including a community in Indiana that recently completed a significant renovation and conversion and is now in lease-up that was excluded beginning in the second quarter of 2018. Three communities that were previously excluded from the Company’s Non-GAAP financial measures were added back to such measures beginning in the first quarter of 2018.

Adjusted EBITDAR for the second quarter of 2018 was $38.4 million as compared to $38.3 million in the second quarter of 2017.  Adjusted CFFO was $10.6 million in the second quarter of 2018, as compared to $11.5 million in the second quarter of 2017. 

Operating Activities

Same-community results exclude two communities previously noted that are undergoing lease-up or significant renovation and conversion, and the two Houston communities impacted by Hurricane Harvey. Same-community results also exclude certain conversion costs.

Same-community revenue in the second quarter of 2018 increased 0.1% versus the second quarter of 2017. 

Same-community operating expenses increased 2.8% from the second quarter of the prior year, excluding conversion costs in both periods.  On the same basis, labor costs, including benefits, increased 3.4% and utilities increased 6.6%, while food costs decreased 6.9%, all as compared to the second quarter of 2017.  At communities that have not converted units to higher levels of care, labor costs increased 2.5%
compared to the second quarter of 2017.  Same-community net operating income decreased 4.3% in the second quarter of 2018 as compared to the second quarter of 2017. 

Capital expenditures for the second quarter of 2018 were $5.2 million, representing approximately $4.0 million of investment spending and approximately $1.2 million of recurring capital expenditures.

Financial Outlook

The Company expects the operating environment to remain challenging through 2018 and for the lower average monthly rents that resulted from the pricing actions taken in the first half of 2018 to impact the remainder of the year.  As such, the Company currently expects its full-year 2018 Adjusted CFFO to be in the range of $38 million to $41 million.  Immediate recovery plans have been implemented across the portfolio to increase revenues and reduce expenses.  The sales and operational improvements the Company has been implementing throughout 2018 continue to progress. Furthermore, the Company is currently conducting a comprehensive review of operations to determine additional steps that can be taken to improve performance going forward.  The Company believes these proactive actions will position it to deliver improved results beginning in 2019, particularly as the 80+ senior population growth accelerates in the next 18 months and beyond.     

Balance Sheet

The Company ended the quarter with $24.3 million of cash and cash equivalents, including restricted cash.  As of June 30, 2018, the Company financed its owned communities with mortgages totaling $954.6 million at interest rates averaging 4.8%.  All of the Company’s debt is at fixed interest rates, except for two bridge loans totaling approximately $76.4 million at June 30, 2018, one of which matures in the first quarter of 2020 and the other in the fourth quarter of 2021.  The earliest maturity date for the Company’s fixed-rate debt is in 2021. 

The Company’s cash on hand and cash flow from operations are expected to be sufficient for working capital, prudent reserves and the equity needed to fund the Company’s acquisition, conversion and renovation programs.

Q2 2018 Conference Call Information

The Company will host a conference call with senior management to discuss the Company’s second quarter 2018 financial results.  The call will be held on Tuesday, July 31, 2018, at 5:00 p.m. Eastern Time.  The call-in number is 323-994-2093, confirmation code 7656713.  A link to a simultaneous webcast of the teleconference will be available at www.capitalsenior.com through Windows Media Player or RealPlayer.

For the convenience of the Company’s shareholders and the public, the conference call will be recorded and available for replay starting July 31, 2018 at 8:00 p.m. Eastern Time, until August 8, 2018 at 8:00 p.m. Eastern Time.  To access the conference call replay, call 719-457-0820, confirmation code 7656713.  The conference call will also be made available for playback via the Company’s corporate website, www.capitalsenior.com.

Non-GAAP Financial Measures of Operating Performance

Adjusted EBITDAR is a financial valuation measure and Adjusted Net Income/(Loss) and Adjusted CFFO are financial performance measures that are not calculated in accordance with U.S. generally accepted accounting principles (“GAAP”).  Non-GAAP financial measures may have material limitations in that they do not reflect all of the costs associated with our results of operations as determined in accordance with GAAP.  As a result, these non-GAAP financial measures should not be considered a substitute for, nor superior to, financial results and measures determined or calculated in accordance with GAAP. 

Adjusted EBITDAR is a valuation measure commonly used by our management, research analysts and investors to value companies in the senior living industry.  Because Adjusted EBITDAR excludes interest expense and rent expense, it allows our management, research analysts and investors to compare the enterprise values of different companies without regard to differences in capital structures and leasing arrangements.

The Company believes that Adjusted Net Income/(Loss) and Adjusted CFFO are useful as performance measures in identifying trends in day-to-day operations because they exclude the costs associated with acquisitions and conversions and other items that do not ordinarily reflect the ongoing operating results of our primary business.  Adjusted Net Income/(Loss) and Adjusted CFFO provide indicators to management of progress in achieving both consolidated and individual business unit operating performance and are used by research analysts and investors to evaluate the performance of companies in the senior living industry.

The Company strongly urges you to review on the last page of this release the reconciliation of net loss to Adjusted EBITDAR and the reconciliation of net income/(loss) to Adjusted Net Income/(Loss) and Adjusted CFFO, along with the Company’s consolidated balance sheets, statements of operations, and statements of cash flows.

About the Company

Capital Senior Living Corporation is one of the nation’s largest operators of residential communities for senior adults. The Company’s operating strategy is to provide value to residents by providing quality senior housing services at reasonable prices.  The Company’s communities emphasize a continuum of care, which integrates independent living, assisted living, and memory care services, to provide residents the opportunity to age in place.  The Company operates 129 senior housing communities in geographically concentrated regions with an aggregate capacity of approximately 16,500 residents.

Safe Harbor

The forward-looking statements in this release are subject to certain risks and uncertainties that could cause results to differ materially, including, but not without limitation to, the Company’s ability to find suitable acquisition properties at favorable terms, financing, refinancing, community sales, licensing, business conditions, risks of downturns in economic conditions generally, satisfaction of closing conditions such as those pertaining to licensure, availability of insurance at commercially reasonable rates, and changes in accounting principles and interpretations among others, and other risks and factors identified from time to time in our reports filed with the Securities and Exchange Commission.

For information about Capital Senior Living, visit www.capitalsenior.com.

Contact Carey P. Hendrickson, Chief Financial Officer, at 972-770-5600 for more information.


CAPITAL SENIOR LIVING CORPORATION
CONSOLIDATED BALANCE SHEETS
(unaudited, in thousands, except per share data)

  June 30,
2018
  December 31,
2017
 
ASSETS        
Current assets:        
Cash and cash equivalents $10,870  $17,646 
Restricted cash  13,457   13,378 
Accounts receivable, net  13,933   12,307 
Property tax and insurance deposits  11,054   14,386 
Prepaid expenses and other  6,626   6,332 
Total current assets  55,940   64,049 
Property and equipment, net  1,079,770   1,099,786 
Other assets, net  17,929   18,836 
Total assets $1,153,639  $1,182,671 
LIABILITIES AND SHAREHOLDERS’ EQUITY        
Current liabilities:        
Accounts payable $6,534  $7,801 
Accrued expenses  38,347   40,751 
Current portion of notes payable, net of deferred loan costs  19,278   19,728 
Current portion of deferred income  14,340   13,840 
Current portion of capital lease and financing obligations  2,912   3,106 
Federal and state income taxes payable  172   383 
Customer deposits  1,305   1,394 
Total current liabilities  82,888   87,003 
Deferred income  9,092   10,033 
Capital lease and financing obligations, net of current portion  47,465   48,805 
Deferred taxes  1,941   1,941 
Other long-term liabilities  13,486   16,250 
Notes payable, net of deferred loan costs and current portion  930,042   938,206 
Commitments and contingencies        
Shareholders’ equity:        
Preferred stock, $.01 par value:        
Authorized shares – 15,000; no shares issued or outstanding      
Common stock, $.01 par value:        
Authorized shares – 65,000; issued and outstanding
shares – 31,178 and 30,505 in 2018 and 2017, respectively
  317   310 
Additional paid-in capital  183,960   179,459 
Retained deficit  (112,122)  (95,906)
Treasury stock, at cost – 494 shares in 2018 and 2017  (3,430)  (3,430)
      Total shareholders’ equity  68,725   80,433 
      Total liabilities and shareholders’ equity $1,153,639  $1,182,671 
 


CAPITAL SENIOR LIVING CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(unaudited, in thousands, except per share data)

  Three Months Ended
June 30,
  Six Months Ended
June 30,
 
  2018  2017  2018  2017 
Revenues:                
Resident revenue $114,627  $116,718  $229,270  $232,708 
Expenses:                
Operating expenses (exclusive of facility lease expense and depreciation and amortization expense shown below)  72,968   73,289   144,668   146,067 
General and administrative expenses  5,712   6,083   11,734   12,317 
Facility lease expense  14,224   13,968   28,438   28,555 
Loss on facility lease termination           12,858 
Stock-based compensation expense  2,559   1,941   4,508   3,871 
Depreciation and amortization expense  15,521   16,746   30,893   33,959 
Total expenses  110,984   112,027   220,241   237,627 
Income (Loss) from operations  3,643   4,691   9,029   (4,919)
Other income (expense):                
Interest income  38   14   75   32 
Interest expense  (12,615)  (12,404)  (25,066)  (24,409)
Gain (Loss) on disposition of assets, net        3   (125)
Other income  1   2   2   5 
Loss before provision for income taxes  (8,933)  (7,697)  (15,957)  (29,416)
Provision for income taxes  (127)  (138)  (259)  (261)
Net loss $(9,060) $(7,835) $(16,216) $(29,677)
Per share data:                
Basic net loss per share $(0.30) $(0.27) $(0.55) $(1.01)
Diluted net loss per share $(0.30) $(0.27) $(0.55) $(1.01)
Weighted average shares outstanding — basic  29,831   29,478   29,730   29,384 
Weighted average shares outstanding — diluted  29,831   29,478   29,730   29,384 
Comprehensive loss $(9,060) $(7,835) $(16,216) $(29,677)
 


CAPITAL SENIOR LIVING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)

  Six Months Ended June 30, 
  2018  2017 
Operating Activities        
Net loss $(16,216) $(29,677)
Adjustments to reconcile net loss to net cash provided by operating activities:        
Depreciation and amortization  30,893   33,959 
Amortization of deferred financing charges  859   800 
Amortization of deferred lease costs and lease intangibles  424   435 
Amortization of lease incentives  (856)  (597)
Deferred income  (344)  (502)
Lease incentives     3,655 
Loss on facility lease termination     12,858 
(Gain) Loss on disposition of assets, net  (3)  125 
Provision for bad debts  1,454   975 
Stock-based compensation expense  4,508   3,871 
Changes in operating assets and liabilities:        
Accounts receivable  (3,080)  (3,828)
Property tax and insurance deposits  3,332   3,586 
Prepaid expenses and other  (294)  1,974 
Other assets  407   5,380 
Accounts payable  (1,267)  2,944 
Accrued expenses  (2,404)  (2,907)
Other liabilities  (1,908)  2,750 
Federal and state income taxes receivable/payable  (211)  (235)
Deferred resident revenue  (97)  (517)
Customer deposits  (89)  (65)
Net cash provided by operating activities  15,108   34,984 
Investing Activities        
Capital expenditures  (10,802)  (21,942)
Cash paid for acquisitions     (85,000)
Proceeds from disposition of assets  4   13 
Net cash used in investing activities  (10,798)  (106,929)
Financing Activities        
Proceeds from notes payable  1,740   66,584 
Repayments of notes payable  (11,167)  (10,302)
Cash payments for capital lease and financing obligations  (1,534)  (1,161)
Deferred financing charges paid  (46)  (914)
Net cash (used in) provided by financing activities  (11,007)  54,207 
Decrease in cash and cash equivalents  (6,697)  (17,738)
Cash and cash equivalents and restricted cash at beginning of period  31,024   47,323 
Cash and cash equivalents and restricted cash at end of period $24,327  $29,585 
Supplemental Disclosures        
Cash paid during the period for:        
Interest $24,121  $23,265 
Income taxes $543  $529 
 


 
Capital Senior Living Corporation
Supplemental Information
 
         Average    
     Communities Resident Capacity Average Units
     Q2 18 Q2 17 Q2 18 Q2 17 Q2 18 Q2 17
Portfolio Data            
 I. Community Ownership / Management            
  Consolidated communities            
   Owned 83  83  10,767  10,767  7,971  8,179 
   Leased 46  46  5,756  5,756  4,420  4,409 
   Total 129  129  16,523  16,523  12,391  12,588 
               
  Independent living     6,879  6,879  4,898  5,245 
  Assisted living     9,644  9,644  7,493  7,343 
   Total     16,523  16,523  12,391  12,588 
                
              
 II. Percentage of Operating Portfolio            
  Consolidated communities            
   Owned 64.3% 64.3% 65.2% 65.2% 64.3% 65.0%
   Leased 35.7% 35.7% 34.8% 34.8% 35.7% 35.0%
   Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
                
  Independent living     41.6% 41.6% 39.5% 41.7%
  Assisted living     58.4% 58.4% 60.5% 58.3%
   Total     100.0% 100.0% 100.0% 100.0%
 


Capital Senior Living Corporation 
Supplemental Information (excludes two communities being repositioned/leased up and two communities impacted by Hurricane Harvey)
Selected Operating Results
 
   Q2 18 Q2 17
 I. Owned communities    
  Number of communities   79    79 
  Resident capacity   10,248    10,248 
  Unit capacity (1)   7,776    7,755 
  Financial occupancy (2) 86.9% 87.8%
  Revenue (in millions) 71.5  71.2 
  Operating expenses (in millions) (3) 46.3  45.0 
  Operating margin (3) 35% 37%
  Average monthly rent   3,527    3,483 
 II. Leased communities    
  Number of communities    46    46 
  Resident capacity   5,756    5,756 
  Unit capacity (1)   4,420    4,409 
  Financial occupancy (2) 83.1% 84.2%
  Revenue (in millions) 41.7  42.0 
  Operating expenses (in millions) (3) 25.1  24.4 
  Operating margin (3) 40% 42%
  Average monthly rent   3,789    3,769 
 III. Consolidated and Same communities (4)    
  Number of communities    125    125 
  Resident capacity   16,004    16,004 
  Unit capacity   12,196    12,164 
  Financial occupancy (2) 85.5% 86.5%
  Revenue (in millions) 113.2  113.1 
  Operating expenses (in millions) (3) 71.3  69.4 
  Operating margin (3) 37% 39%
  Average monthly rent   3,619    3,584 
 IV. General and Administrative expenses as a percent of Total Revenues under Management      
  Second quarter (5) 3.9% 4.8%
  Year to Date (5) 4.5% 4.8%
 V. Consolidated Mortgage Debt Information (in thousands, except interest rates)    
  (excludes insurance premium financing)      
  Total fixed rate mortgage debt   878,179    887,477 
  Total variable rate mortgage debt   76,381    76,624 
  Weighted average interest rate 4.77% 4.63%
       
    
 (1) Due to conversion and refurbishment projects completed at certain communities, unit capacity is higher in Q2 18 than Q2 17 for same communities under management, which affects all groupings of communities. 
 (2) Financial occupancy represents actual days occupied divided by total number of available days during the quarter. 
 (3) Excludes management fees, provision for bad debts and transaction and conversion costs. 
 (4) Since the Company has not completed any new acquisitions of communities, other than the four communities which were acquired during the first quarter of fiscal 2017 that were previously leased and already included in the Company’s consolidated operating results, consolidated and same communities are equivalent for the comparable periods and no longer require separate reporting by the Company. 
 (5) Excludes transaction and conversion costs. 
    


 
CAPITAL SENIOR LIVING CORPORATION
NON-GAAP RECONCILIATIONS
(In thousands, except per share data)
         
  Three Months Ended June 30,   Six Months Ended June 30,
   2018   2017   2018   2017 
Adjusted EBITDAR       
 Net loss$   (9,060) $  (7,835) $  (16,216) $  (29,677)
 Depreciation and amortization expense   15,521     16,746     30,893     33,959 
 Stock-based compensation expense   2,559     1,941     4,508     3,871 
 Facility lease expense   14,224     13,968     28,438     28,555 
 Loss on facility lease termination   -      -      -      12,858 
 Provision for bad debts   995     532      1,454     975 
 Interest income   (38)    (14)    (75)    (32)
 Interest expense   12,615     12,404     25,066     24,409 
 Loss (Gain) on disposition of assets, net   -      -      (3)    125 
 Other income   (1)    (2)    (2)    (5)
 Provision for income taxes   127     138     259     261 
 Casualty losses   215      712     429     1,023 
 Transaction and conversion costs   589     838     838     1,552 
 Employee benefit reserve adjustments 690   -   690   - 
 Communities excluded due to repositioning/lease-up   (38)    (1,112)    24     (1,813)
 Adjusted EBITDAR$  38,398  $  38,316  $   76,303  $  76,061 
         
Adjusted Revenues       
 Total revenues$  114,627  $  116,718  $  229,270  $  232,708 
 Communities excluded due to repositioning/lease-up    (1,419)    (4,700)    (2,773)    (9,341)
 Adjusted revenues$  113,208  $  112,018  $  226,497  $  223,367 
         
Adjusted net loss and Adjusted net loss per share       
 Net loss$  (9,060) $  (7,835) $  (16,216) $  (29,677)
 Casualty losses   215     712     429      1,023 
 Transaction and conversion costs   619     933     881     2,036 
 Employee benefit reserve adjustments 690   -   690   - 
 Resident lease amortization    -      2,085     -      5,323 
 Loss on facility lease termination   -      -      -      12,859 
 Loss (Gain) on disposition of assets   -      -      (3)    125 
 Tax impact of Non-GAAP adjustments (25% in 2018 and 37% in 2017)   (209)    (1,380)    (327)    (7,905)
 Deferred tax asset valuation allowance   2,110     2,768     3,519     10,933 
 Communities excluded due to repositioning/lease-up   606     453     1,278     1,038 
 Adjusted net loss$  (5,029) $  (2,264) $  (9,749) $  (4,245)
         
 Diluted shares outstanding 29,831   29,478   29,730   29,384 
 Adjusted net loss per share$  (0.17) $  (0.08) $  (0.33) $  (0.14)
         
Adjusted CFFO       
 Net loss$   (9,060) $  (7,835) $  (16,216) $  (29,677)
 Non-cash charges, net   19,012     20,535     36,935     55,579 
 Lease incentives    -      (1,397)    -      (3,655)
 Recurring capital expenditures   (1,186)    (1,186)    (2,373)    (2,373)
 Casualty losses   215     712     429     1,023 
 Transaction and conversion costs   619     933     881      1,812 
 Employee benefit reserve adjustments 690   -   690   - 
 Communities excluded due to repositioning/lease-up   320     (311)    709     (233)
 Adjusted CFFO$   10,610  $  11,451  $  21,055  $  22,476 
 


PRESS CONTACT:
Carey Hendrickson, Chief Financial Officer
Phone: 1-972-770-5600

Tuesday, July 31, 2018 - 16:15