Capital Senior Living Corporation Reports Second Quarter 2018 Results

DALLAS, July 31, 2018 (GLOBE NEWSWIRE) -- Capital Senior Living Corporation (the "Company") 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