Capital Senior Living Corporation reports fourth quarter and full year 2019 results
Revenue and CFFO Stabilize in Fourth Quarter
Recent Lease Terminations and Transactions Strengthen Financial Foundation
Provides Business Update in Response to COVID-19
DALLAS – March 31, 2020 – Capital Senior Living Corporation (the “Company”) (NYSE: CSU), one of the nation’s largest operators of senior housing communities, announced today operating and financial results for the fourth quarter and full year ended December 31, 2019.
“During 2019, we put in place the operational discipline necessary to improve the business for the long term, and as a result, we are pleased to report that our operating performance stabilized in the fourth quarter,” said Kimberly S. Lody, President and Chief Executive Officer. “Specifically, we have improved the quality of our products and services, upgraded our management talent, improved our data and systems, and enhanced the efficiency and effectiveness of our operational processes. In addition, we have strengthened the Company’s financial foundation through the sale of non-core communities and the accretive early terminations of our master leases with Healthpeak, Ventas and Welltower. All of these actions will improve our operating performance going forward, reduce our debt and lease liabilities, and significantly enhance our financial flexibility and resilience.”
Ms. Lody continued, “As the COVID-19 pandemic continues to unfold, we are relentlessly focused on the safety and wellbeing of our residents, employees and caregivers. This is, and will remain, our highest priority. We are taking all precautionary safety measures, following guidance from the CDC and other government authorities, and focusing on prevention and education to keep our communities safe. We are closely monitoring updates from federal, state, and local sources and will continue to evolve our response as we receive new information.”
COVID-19 Business Update
At the onset of the COVID-19 pandemic, the Company’s operations teams swiftly implemented comprehensive protocols and best-practices across the portfolio based on guidance from the Centers for Disease Control as well as federal, state and local authorities. All communities have executed risk-mitigation actions, such as restricting access and assessing the health status of every person entering the communities, including the Company’s employees, all visitors, and all outside service providers.
Through mid-March 2020, the Company delivered results in line with its expectations. Although in-person community tours have now slowed, the Company is relying on its virtual tours, social media and other electronic means to continue engaging with prospective residents and their families. New residents continue to move in, but at a lower rate than in recent months, and the level of move-outs is also trending lower. The Company expects to recognize increases in labor costs due to the need for premium labor to supplement staffing, and increases in costs for medical supplies. To offset the COVID-related expenditures, the Company has reduced spending on non-essential supplies, travel costs and all other discretionary items, and has ceased all non-critical capital expenditure projects. The Company will continue to monitor these trends and conditions while working to mitigate the potential impact on its revenues, expenses and liquidity.
The company is evaluating the CARES stimulus bill, and plans to apply relevant provisions of the bill to the fullest extent possible.
- Revenue stabilized in the fourth quarter of 2019 at $108.7 million, consistent with the revenue contribution for like communities in the third quarter of 2019.
- Adjusted CFFO was $(1.4) million in the fourth quarter of 2019 as compared to $(1.2) million in third quarter of 2019.
- On October 1, the Company sold two non-core independent living communities for approximately $64.8 million, generating $14.8 million in net cash proceeds and eliminating $44.4 million of mortgage debt.
- On October 22, the Company entered into an agreement with Healthpeak for the early termination of an underperforming nine-community master lease scheduled to mature in October 2020.
- In the first quarter of 2020, the Company reached agreements with Healthpeak, Ventas, and Welltower for early terminations of its Master Leases. When the transitions are complete, the agreements are expected to improve the Company’s cash flow by approximately $22.0 million and all related lease liabilities, which were approximately $253.0 million at December 31, 2019, will be eliminated.
- The Company announces that it expects to close today on the sale of a noncore community in Indiana that results in approximately $6.9 million in net cash proceeds.
Full Year Results
The Company reported net loss of $36.0 million for the year ended December 31, 2019.
The Company’s Non-GAAP financial measures exclude two communities that are undergoing significant renovation and conversion (see “Non-GAAP Financial Measures” below).
Adjusted EBITDAR and Adjusted CFFO for full year 2019 were $121.4 million and $8.1 million, respectively. Adjusted CFFO for full year 2019 includes a negative net impact of $2.0 million related to the Company’s adoption of the new lease accounting standard (“ASC 842”) effective January 1, 2019. There was no impact on Adjusted EBITDAR related to the adoption of the new lease standard.
Financial Results – Fourth Quarter
For the fourth quarter of 2019, the Company reported revenue of $108.7 million, compared with revenue of $115.1 million in the fourth quarter of 2018. The disposition of three communities during 2019 accounted for $3.2 million of the decrease. Total occupancy in the fourth quarter of 2019 was 80.7%, a decrease of 250 basis points as compared to the fourth quarter of 2018, and monthly average rent was $3,662, an increase of 0.4% as compared to the fourth quarter of 2018.
Operating expenses for the fourth quarter of 2019 were $78.7 million, an increase of $2.7 million, or 3.5%, from the fourth quarter of 2018. The increase was mostly due to increases in advertising and promotion, repairs and maintenance, supplies, service contracts and employee vacation expense related to an adjustment to the Company’s paid time off accrual. These increases were partially offset by a decrease in expenses of $1.8 million in the fourth quarter of 2019 due to the disposition of the three communities in 2019. Also, the Company did not have any business interruption credits related to the Company’s two communities impacted by Hurricane Harvey in the fourth quarter of 2019 but had credits of $0.7 million in the fourth quarter of 2018.
General and administrative expenses for the fourth quarter of 2019 were $5.8 million versus $9.6 million in the fourth quarter of 2018. Excluding transaction and conversion costs in both periods (including $4.0 million in separation and placement costs in the fourth quarter of 2018 primarily associated with the Company’s former CEO), general and administrative expenses increased $0.8 million in the fourth quarter of 2019 versus the fourth quarter of 2018. As a percentage of revenues under management, general and administrative expenses, excluding transaction and conversion costs, were 5.5% in the fourth quarter of 2019.
Loss from operations for the fourth quarter of 2019 was $8.8 million as compared to $3.1 million in the fourth quarter of 2018. Net income was $10.2 million for the fourth quarter of 2019, including a $38.8 million gain on the sale of two non-core communities. The Company’s Non-GAAP financial measures exclude two communities that are undergoing significant renovation and conversion (see “Non-GAAP Financial Measures” below).
Adjusted EBITDAR for the fourth quarter of 2019 was $25.7 million and Adjusted CFFO was $(1.4) million. Adjusted CFFO for the fourth quarter of 2019 includes a negative net impact of $0.5 million related to the Company’s adoption of the new lease accounting standard (“ASC 842”) effective January 1, 2019. There was no impact on Adjusted EBITDAR related to the adoption of the new lease standard.
Same Community Results
Same community results exclude two previously noted communities undergoing lease-up or significant renovation and conversion, the two Houston communities impacted by Hurricane Harvey which are also in lease-up, and the three communities the Company disposed of during 2019. Same-community results also exclude certain conversion costs.
Same-community revenue in the fourth quarter of 2019 decreased 3.6% versus the fourth quarter of 2018. Same-community occupancy in the fourth quarter was 81.4%, a decrease of 290 basis points as compared to the fourth quarter of 2018 and average monthly rent was $3,664, a decrease of 0.2% as compared to the fourth quarter of 2018.
Same-community operating expenses increased 5.0% in the fourth quarter of 2019 versus the fourth quarter of 2018. Same store labor costs, including benefits, increased 2.7%, food costs increased 1.9%, and utilities increased 0.7%. Advertising and promotion, repairs and maintenance, supplies, and service contracts also contributed to the overall increase in operating expenses. Same-community net operating income decreased 19.8% in the fourth quarter of 2019 when compared with the fourth quarter of 2018.
Sales of Senior Living Communities
As previously announced, the Company closed on the sale of two non-core communities located in Springfield, Missouri, and Peoria, Illinois, on October 1, 2019, at a purchase price of $64.8 million. The transaction resulted in approximately $14.8 million in net cash proceeds. The two communities consisted of 314 independent living units and had CFFO contribution of $2.5 million in 2019 prior to the sale. With the sale of these two communities, the Company also eliminated $44.4 million of mortgage debt and avoided significant near-term capital expenditures.
The Company announces that it expects to close today on the sale of an additional noncore community in Merrillville, Indiana, with expected net proceeds of approximately $6.9 million. The community consists of 213 assisted living and memory care units, and had CFFO contribution of approximately $0.2 million in 2019.
Balance Sheet and Liquidity
The Company ended the fourth quarter with $37.1 million of cash and cash equivalents, including restricted cash. As of December 31, 2019, the Company financed its owned communities with mortgages totaling $926.5 million, at interest rates averaging 4.8%. The majority of the Company’s debt is at fixed interest rates excluding three bridge loans totaling approximately $83.0 million, all with maturities in the fourth quarter of 2021, and approximately $50 million of long-term variable rate debt under the Company’s Master Credit Facility. The earliest maturity date for the Company’s fixedrate debt is in 2022.
The Company has taken significant steps to strengthen its liquidity and currently expects its cash on hand and cash flow from operations to be sufficient for working capital and to fund the Company’s capital expenditures.
Q4 2019 Conference Call Information
The Company will host a conference call with senior management to discuss the Company’s 2019 fourth quarter and full year 2019 financial results on Tuesday, March 31, 2020, at 10:00 a.m. Eastern Time. To participate, dial 323-794-2093, and use confirmation code 3219928. A link to a simultaneous webcast of the teleconference will be available at www.capitalsenior.com.
For the convenience of the Company’s shareholders and the public, the conference call will be recorded and available for replay starting March 31, 2020 at 1:00 p.m. Eastern Time, until April 8, 2020 at 1:00 p.m. Eastern Time. To access the conference call replay, call 719-457-0820, confirmation code 3219928. The conference call will also be made available for playback via the Company’s corporate website at https://www.sonidaseniorliving.com/investor-relations/conference-calls/.
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 Company management, research analysts and investors to value companies in the senior living industry. Since Adjusted EBITDAR excludes interest expense and rent expense, it allows Company 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 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. This is included on the last page of this press release.
About the Company
Dallas-based Capital Senior Living Corporation is one of the nation’s largest operators of independent living, assisted living and memory care communities for senior adults. The Company’s 125 communities are home to more than 11,000 residents across 23 states and provide compassionate, resident-centric service and care as well as engaging programming. Capital Senior Living offers seniors the freedom and opportunity to successfully, comfortably and happily age in place. For more information, visit www.capitalsenior.com or connect with the Company on Facebook.
The forward-looking statements in this release are subject to certain risks and uncertainties that could cause the Company’s actual results and financial condition to differ materially, including, but not limited to, the Company’s ability to generate sufficient cash flows from operations, additional proceeds from debt refinancings, and proceeds from the sale of assets to satisfy its short and long-term debt and lease obligations and to fund the Company’s capital improvement projects to expand, redevelop, and/or reposition its senior living communities; the Company’s ability to obtain additional capital on terms acceptable to it; the Company’s ability to extend or refinance its existing debt as such debt matures; the Company’s compliance with its debt and lease agreements, including certain financial covenants, and the risk of cross-default in the event such noncompliance occurs; the Company’s ability to complete acquisitions and dispositions upon favorable terms or at all; the risk of oversupply and increased competition in the markets which the Company operates; the risk of increased competition for skilled workers due to wage pressure and changes in regulatory requirements; the departure of the Company’s key officers and personnel; the cost and difficulty of complying with applicable licensure, legislative oversight, or regulatory changes; the risks associated with a decline in economic conditions generally; the adequacy and continued availability of the Company’s insurance policies and the Company’s ability to recover any losses it sustains under such policies; changes in accounting principles and interpretations; and the other risks and factors identified from time to time in the Company’s reports filed with the Securities and Exchange Commission.
For information about Capital Senior Living, visit www.capitalsenior.com.
Investor Contact Carey P. Hendrickson, Chief Financial Officer, at 972-770-5600 or [email protected]
Press Contact Susan J. Turkell at 303-766-4343 or [email protected]
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