Capital Senior Living Corporation Reports Third Quarter 2012 Results; CFFO Increases Over 51% Versus Prior Year

Capital Senior Living Corporation (the “Company”) (NYSE:CSU), one of the country’s largest operators of senior living communities, today announced operating results for the third quarter of 2012. Company highlights for the third quarter include:

Highlights
  • Adjusted Cash From Facility Operations (“CFFO”) increased 51.6% to $8.9 million, or $0.33 per share in the third quarter of 2012, an increase of $0.11 per share from the third quarter of 2011.
  • Adjusted EBITDAR increased 15.0% to $27.4 million in the third quarter of 2012, an increase of $3.6 million from the third quarter of 2011. EBITDAR margin improved to 35.1% from 34.9% in the third quarter of the prior year.
  • Revenue increased 14.4% to $78.0 million in the third quarter of 2012, an increase of $9.8 million from the third quarter of 2011.
  • Average monthly rent for the consolidated communities increased 2.1% to $2,984 per occupied unit in the third quarter of 2012, an increase of $60 per occupied unit from the third quarter of 2011.
  • Same-community occupancies increased 180 basis points from the third quarter of 2011 and 80 basis points from the second quarter of 2012.
  • Subsequent to the end of the third quarter, the Company completed the acquisition of eight additional senior living communities for a combined purchase price of approximately $72.9 million, increasing the Company’s owned portfolio from 38 to 46 communities.

“We are very pleased to report continued occupancy growth and strong operating and financial results for the third quarter,” said Lawrence A. Cohen, Chief Executive Officer of the Company. “Successful execution of our strategic plan is significantly enhancing shareholder value through a focus on operations, marketing and accretive growth. Same-community occupancies increased 180 basis points from the comparable quarter of the prior year and 80 basis points sequentially. EBITDAR margin increased by 20 basis points from the third quarter of 2011. We continue to enhance our geographic concentration by acquiring high quality senior living communities that generate meaningful increases in CFFO, earnings and owned real estate. So far this year, we have acquired 15 communities for a combined purchase price of $148.5 million, and we are conducting due diligence on additional communities that we expect to close by year-end. As the value leader in providing quality seniors housing and care at reasonable prices, we are well positioned to make further gains as a substantially all private-pay business in an industry that benefits from need-driven demand and limited new supply.”

Recent Investment Activity

On October 24, 2012, the Company announced it had completed the acquisition of eight senior living communities for a purchase price of approximately $72.9 million. These communities are in Texas, Indiana and Ohio, enhancing the Company’s existing operations in these states.

Highlights of this transaction include:

- Additional Cash from Facility Operations (“CFFO”) of $3.6 million, or $0.13 per share.

- Incremental earnings of $2.0 million, or $0.08 per share.

- Increases annual revenue by approximately $20.4 million.

- Average occupancy above 95%.

- Average monthly rents are approximately $3,200.

The eight communities are financed with an aggregate of approximately $50.2 million of non-recourse mortgage debt at a blended average interest rate of approximately 4.50%.
  • The Company is conducting due diligence on additional transactions consisting of high-quality senior living communities in regions with extensive existing operations. Subject to completion of due diligence and customary closing conditions, the Company expects to acquire additional communities in the fourth quarter of 2012.

Financial Results

For the third quarter of 2012, the Company reported revenue of $78.0 million, compared to revenue of $68.2 million in the third quarter of 2011. Resident and healthcare revenue increased from the third quarter of the prior year by approximately $9.6 million, or 14.4%, largely as a result of acquiring 10 communities since the third quarter of 2011. The number of consolidated communities increased from 78 in the third quarter of 2011 to 88 in the third quarter of 2012.

Average monthly rent for the consolidated communities was $2,984 per occupied unit in the third quarter of 2012, an increase of $60, or 2.1%, over the third quarter of 2011. Financial occupancy of the consolidated portfolio averaged 86.1% in the third quarter of 2012, 140 basis points higher than the third quarter of 2011, and 30 basis points higher than the second quarter of 2012.

As a percentage of resident and healthcare revenue, operating expenses were 61.1% in the third quarter of 2012, compared to 61.2% in the third quarter of 2011, an improvement of 10 basis points. Margins in the third quarter of the year typically reflect higher utility costs due to the summer heat. Operating expenses for the third quarter of 2012 were $46.8 million, an increase of $5.8 million from the third quarter of 2011, primarily due to 10 additional communities now being consolidated.

General and administrative expenses as a percentage of revenues under management were 3.8% for the quarter, excluding transaction costs associated with the Company’s acquisition program. Transaction costs for the quarter were approximately $0.2 million.

Adjusted EBITDAR for the third quarter of 2012 was approximately $27.4 million, an increase of $3.6 million, or 15.0% from the third quarter of 2011. Adjusted EBITDAR margin was 35.1% for the period, an improvement of 20 basis points from the third quarter of 2011.

Adjusted net income for the third quarter of 2012 was $1.8 million, or $0.07 per share, excluding non-recurring or non-economic items reconciled on the final page of this release. This compares to adjusted net income of $1.7 million, or $0.06 per share in the third quarter of 2011.

Adjusted CFFO was $8.9 million or $0.33 per share in the third quarter of 2012. Adjusted CFFO exceeded the third quarter of 2011 by $3.0 million, or $0.11 per share.

For the first nine months of 2012, the company reported revenue of $227.3 million, compared to revenue of $192.4 million for the first nine months of 2011. Resident and healthcare revenue increased $36.4 million from the first nine months of the prior year.

Adjusted EBITDAR for the first nine months of 2012 was $80.8 million, compared to $66.9 million for the first nine months of 2011. The Company earned adjusted net income of $5.8 million or $0.21 per share in the first nine months of 2012, compared to adjusted net income of $4.8 million or $0.18 per share in the first nine months of 2011. Adjusted CFFO was $23.9 million or $0.87 per share in the first nine months of 2012, compared to $17.0 million or $0.63 per share in the first nine months of 2011.

Operating Activities

At communities under management, same-community revenue in the third quarter of 2012 increased 3.8% versus the third quarter of 2011, excluding one community that had a recent conversion. Same-community expenses increased 2.5% and net operating income increased 5.8% from the third quarter of the prior year.

Same-community occupancies were 180 basis points higher than the third quarter of 2011 and 80 basis points higher than the second quarter of 2012. Same-community occupancy during the last year reflects occupancy gains in independent living exceeding those in higher levels of care, resulting in average rents 1.7% higher than the third quarter of 2011 and 0.8% higher than last quarter.

Capital expenditures for the third quarter of 2012 were approximately $3.4 million, representing $2.1 million of investment spending and $1.3 million of recurring capital expenditures. If annualized, spending for recurring capital expenditures equaled approximately $500 per unit.

Balance Sheet

The Company ended the third quarter of 2012 with $57.5 million of cash and cash equivalents, including restricted cash. As of September 30, 2012, the Company financed its 38 owned communities with mortgages totaling $287.6 million at fixed interest rates averaging 5.5%, with no mortgage maturities before the third quarter of 2015. Net debt to third quarter annualized EBITDA was 4.5x and EBITDA to interest coverage was 2.8x in the third quarter.

Q3 2012 Conference Call Information

The Company will host a conference call with senior management to discuss the Company’s third quarter 2012 financial results. The call will be held on Thursday, November 8, 2012 at 11:00 a.m. Eastern Time. The Company’s earnings release announcing third quarter 2012 financial results is scheduled to be released to news services the evening of Wednesday, November 7, 2012. The call-in number is 913-312-1500, confirmation code 2458695. 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 November 8, 2012 at 2:00 p.m. Eastern Time, until November 17, 2012 at 8:00 p.m. Eastern Time. To access the conference call replay, call 719-457-0820, confirmation code 2458695. The conference call will also be made available for playback via the Company’s corporate website, www.capitalsenior.com.

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 philosophy emphasizes a continuum of care, which integrates independent living, assisted living and home care services, to provide residents the opportunity to age in place. The Company currently operates 99 senior living communities in geographically concentrated regions with an aggregate capacity of approximately 13,300 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, 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.

This release contains certain financial information not derived in accordance with generally accepted accounting principles (GAAP), including adjusted EBITDAR, adjusted EBITDAR margin, Adjusted CFFO, Adjusted CFFO per share and other items. The Company believes this information is useful to investors and other interested parties. Such information should not be considered as a substitute for any measures derived in accordance with GAAP, and may not be comparable to other similarly titled measures of other companies. Reconciliation of this information to the most comparable GAAP measures is included as an attachment to this release.
 
CAPITAL SENIOR LIVING CORPORATION
 
CONSOLIDATED BALANCE SHEETS
(in thousands)
         
September 30, December 31,
2012 2011

(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 48,298 $ 22,283
Restricted cash 9,196 9,102
Accounts receivable, net 3,709 4,526
Accounts receivable from affiliates 846 708
Federal and state income taxes receivable 5,438
Deferred taxes 1,643 1,479
Property tax and insurance deposits 9,322 11,395
Prepaid expenses and other   3,809     6,068  
Total current assets 76,823 60,999
Property and equipment, net 435,832 365,459
Deferred taxes 12,044 5,782
Investments in unconsolidated joint ventures 1,050 1,070
Other assets, net   35,636     29,016  
Total assets $ 561,385   $ 462,326  
 
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,931 $ 2,297
Accounts payable to affiliates 243 314
Accrued expenses 22,410 19,086
Current portion of notes payable 8,173 8,196
Current portion of deferred income 6,946 8,740
Current portion of capital lease and financing obligations 827 50
Federal and state income taxes payable 3,166
Customer deposits   1,479     1,530  

Total current liabilities
45,175 40,213
Deferred income 20,548 26,175
Capital lease and financing obligations, net of current portion 42,354 31
Other long-term liabilities 1,726 1,826
Notes payable, net of current portion 281,721 224,940
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 – 28,189 and 27,699 in 2012 and 2011, respectively 285 280
Additional paid-in capital 137,494 135,301
Retained earnings 33,016 34,494
Treasury stock, at cost – 350 shares   (934 )   (934 )
Total shareholders' equity   169,861     169,141  
Total liabilities and shareholders' equity $ 561,385   $ 462,326  
 
 
CAPITAL SENIOR LIVING CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME
(unaudited, in thousands, except per share data)
       
Three Months Ended

September 30,
Nine Months Ended

September 30,
2012   2011 2012   2011
Revenues:
Resident and health care revenue $ 76,577 $ 66,928 $ 223,161 $ 186,773
Affiliated management services revenue 176 141 492 738
Community reimbursement revenue   1,259     1,122     3,605     4,839  
Total revenues 78,012 68,191 227,258 192,350
Expenses:

Operating expenses (exclusive of facility lease expense and depreciationand amortization expense shown below)
46,791 40,975 134,186 112,714
General and administrative expenses 3,288 3,270 10,923 9,557
Facility lease expense 13,819 13,723 41,179 38,767
Stock-based compensation expense 602 430 1,843 1,020
Depreciation and amortization 9,214 4,775 24,970 11,916
Community reimbursement expense   1,259     1,122     3,605     4,839  
Total expenses   74,973     64,295     216,706     178,813  
Income from operations 3,039 3,896 10,552 13,537
Other income (expense):
Interest income 369 18 436 82
Interest expense (4,847 ) (2,978 ) (12,699 ) (8,429 )
(Loss) Gain on disposition of assets, net (14 ) 187 (19 ) 181
Equity in losses of unconsolidated joint ventures, net   (26 )   (223 )   (241 )   (619 )
(Loss) Income before benefit (provision) for income taxes (1,479 ) 900 (1,971 ) 4,752
Benefit (Provision) for income taxes   542     (390 )   493     (2,073 )
Net (loss) income $ (937 ) $ 510   $ (1,478 ) $ 2,679  
Per share data:
Basic net (loss) income per share $ (0.03 ) $ 0.02   $ (0.05 ) $ 0.10  
Diluted net (loss) income per share $ (0.03 ) $ 0.02   $ (0.05 ) $ 0.10  
Weighted average shares outstanding — basic   27,383     27,026     27,331     26,971  
Weighted average shares outstanding — diluted   27,383    

27,072
    27,331     27,050  
 
Comprehensive (loss) income $ (937 ) $ 510   $ (1,478 ) $ 2,679  
 
 
CAPITAL SENIOR LIVING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
     
Nine Months Ended

September 30,
2012   2011
Operating Activities
Net (loss) income $ (1,478 ) $ 2,679
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization 24,970 11,917
Amortization of deferred financing charges 518 252
Amortization of deferred lease costs and lease intangibles 452 1,615
Deferred income (2,505 ) (1,632 )
Deferred income taxes (6,426 ) (4,708 )
Loss (Gain) on disposition of assets, net 19 (181 )
Equity in losses of unconsolidated joint ventures 241 619
Provision for bad debts 550 123
Stock based compensation expense 1,843 1,020
Changes in operating assets and liabilities:
Accounts receivable 266 (986 )
Accounts receivable from affiliates (138 ) 360
Property tax and insurance deposits 2,073 1,256
Prepaid expenses and other 2,259 866
Other assets 3,117 (4,485 )
Accounts payable (437 ) 71
Accrued expenses 3,324 2,470
Federal and state income taxes receivable/payable 8,604 556
Customer deposits   (51 )   359  
Net cash provided by operating activities 37,201 12,171
Investing Activities
Capital expenditures (9,096 ) (7,137 )
Cash paid for acquisitions (75,595 ) (53,450 )
Proceeds from Spring Meadows Transaction 15,844
Proceeds from disposition of assets 19
Contributions to unconsolidated joint ventures (241 ) (471 )
Distributions from unconsolidated joint ventures   21     1,442  
Net cash used in investing activities (84,892 ) (43,772 )
Financing Activities
Proceeds from notes payable 81,888 38,464
Repayments of notes payable (6,837 ) (5,123 )
Increase in restricted cash (94 ) (2,759 )
Cash payments for capital lease and financing obligations (230 ) (109 )
Cash proceeds from the issuance of common stock 127 985
Excess tax benefits on stock option exercised 228 122
Deferred financing charges paid   (1,376 )   (513 )
Net cash provided by financing activities   73,706     31,067  
Increase (Decrease) in cash and cash equivalents 26,015 (534 )
Cash and cash equivalents at beginning of period   22,283     31,248  
Cash and cash equivalents at end of period $ 48,298   $ 30,714  
Supplemental Disclosures
Cash paid during the period for:
Interest $ 11,826   $ 8,136  
Income taxes $ 777   $ 6,255  
Non-cash operating, investing, and financing activities during the period:
Intangible assets acquired through capital lease and financing obligations $ 11,794   $  
Property and equipment acquired through capital lease and financing obligations $ 13,243   $  
Notes payable assumed through capital lease and financing obligations $ 18,293   $  
 
                   
Capital Senior Living Corporation
Supplemental Information
     
Communities Resident Capacity Units
Q3 12 Q3 11 Q3 12 Q3 11 Q3 12 Q3 11
Portfolio Data
I. Community Ownership / Management
Consolidated communities
Owned 38 29 5,629 4,524 4,625 3,854
Leased 50 49 6,298 6,318 5,039 5,050
Joint Venture communities (equity method) 3   3   674   674   433   433  
Total 91 81 12,601 11,516 10,097 9,337
 
Independent living 7,035 6,743 5,844 5,615
Assisted living 4,851 4,058 3,635 3,104
Continuing Care Retirement Communities 715   715   618   618  
Total 12,601 11,516 10,097 9,337
 
II. Percentage of Operating Portfolio
Consolidated communities
Owned 41.8 % 35.8 % 44.7 % 39.3 % 45.8 % 41.3 %
Leased 54.9 % 60.5 % 50.0 % 54.9 % 49.9 % 54.1 %
Joint venture communities (equity method) 3.3 % 3.7 % 5.3 % 5.8 % 4.3 % 4.6 %
Total 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 %
 
Independent living 55.8 % 58.6 % 57.9 % 60.1 %
Assisted living 38.5 % 35.2 % 36.0 % 33.3 %
Continuing Care Retirement Communities 5.7 % 6.2 % 6.1 % 6.6 %
Total 100.0 % 100.0 % 100.0 % 100.0 %
 
         
Capital Senior Living Corporation
Supplemental Information
 
Selected Operating Results Q3 12 Q3 11
I. Owned communities
Number of communities 38 29
Resident capacity 5,629 4,524
Unit capacity 4,625 3,854
Financial occupancy (1) 86.1% 86.7%
Revenue (in millions) 32.8 23.9
Operating expenses (in millions) (2) 19.8 13.3
Operating margin 40% 44%
Average monthly rent 2,695 2,427
II. Leased communities
Number of communities 50 49
Resident capacity 6,298 6,318
Unit capacity 5,039 5,050
Financial occupancy (1) 86.1% 83.2%
Revenue (in millions) 43.6 43.0
Operating expenses (in millions) (2) 22.0 23.2
Operating margin 50% 46%
Average monthly rent 3,245 3,298
III. Consolidated communities
Number of communities 88 78
Resident capacity 11,927 10,842
Unit capacity 9,664 8,904
Financial occupancy (1) 86.1% 84.7%
Revenue (in millions) 76.5 66.8
Operating expenses (in millions) (2) 41.8 36.5
Operating margin 45% 45%
Average monthly rent 2,984 2,924
IV. Communities under management
Number of communities 91 81
Resident capacity 12,601 11,516
Unit capacity 10,097 9,337
Financial occupancy (1) 85.7% 83.7%
Revenue (in millions) 80.0 69.6
Operating expenses (in millions) (2) 43.8 38.3
Operating margin 45% 45%
Average monthly rent 3,001 2,939
V. Same Store communities under management
(Excludes 1 community with a conversion)
Number of communities 76 76
Resident capacity 10,818 10,818
Unit capacity 8,798 8,798
Financial occupancy (1) 85.6% 83.8%
Revenue (in millions) 68.7 66.2
Operating expenses (in millions) (2) 37.3 36.3
Operating margin 46% 45%
Average monthly rent 2,988 2,938
VI. General and Administrative expenses as a percent of Total Revenues under Management
Third Quarter (3) 3.8% 4.2%
First nine months (3) 4.2% 4.4%
VII. Consolidated Debt Information (in thousands, except for interest rates)

(Excludes insurance premium and auto financing)
Total fixed rate mortgage debt 287,623 208,409
Weighted average interest rate 5.5% 5.9%
   

(1) - Financial occupancy represents actual days occupied divided by total number of available days during the month of the quarter.

(2) - Excludes management fees, insurance and property taxes.

(3) - Excludes transaction costs incurred by the Company.
 
 

CAPITAL SENIOR LIVING CORPORATION
NON-GAAP RECONCILIATIONS
(In thousands, except per share data)
                     
Three Months Ended September 30, Nine Months Ended September 30,
2012 2011 2012 2011
 
Adjusted EBITDAR
Net income from operations $ 3,039 $ 3,896 $ 10,552 $ 13,537
Depreciation and amortization expense 9,214 4,775 24,970 11,916
Stock-based compensation expense 602 430 1,843 1,020
Facility lease expense 13,819 13,723 41,179 38,767
Provision for bad debts 209 123 551 217
Casualty losses 272 368 535 599
Transaction costs   221     500     1,164     844  
Adjusted EBITDAR $ 27,376   $ 23,815   $ 80,794   $ 66,900  
 
Adjusted EBITDAR Margin
Adjusted EBITDAR $ 27,376 $ 23,815 $ 80,794 $ 66,900
Total revenues   78,012     68,191     227,258     192,350  
Adjusted EBITDAR margin   35.1 %   34.9 %   35.6 %   34.8 %
 
Adjusted net income and net income per share
Net income $ (937 ) $ 510 $ (1,478 ) $ 2,679
Casualty losses, net of tax 171 232 337 377
Transaction costs, net of tax 139 315 733 532
Resident lease amortization, net of tax 2,449 738 6,228 1,368
Loss(Gain) on disposition of assets, net of tax   9     (118 )   12     (114 )
Adjusted net income $ 1,831   $ 1,677   $ 5,832   $ 4,842  
       
Adjusted net income per share $ 0.07   $ 0.06   $ 0.21   $ 0.18  
 
Diluted shares outstanding 27,383 27,072 27,331 27,050
 
Adjusted CFFO and Adjusted CFFO per share
Net cash provided by operating activities $ 17,858 $ 454 $ 37,201 $ 12,171
Changes in operating assets and liabilities (8,368 ) 5,577 (19,017 ) (467 )
Recurring capital expenditures (843 ) (766 ) (2,479 ) (2,172 )
Casualty losses, net of tax 171 232 337 377
Transaction costs 221 500 1,164 844
Tax impact of Spring Meadows Transaction (106 ) (106 ) (318 ) 6,248
Tax impact of lease modification   -     -     6,983     -  
Adjusted CFFO $ 8,933   $ 5,891   $ 23,871   $ 17,001  
       
Adjusted CFFO per share $ 0.33   $ 0.22   $ 0.87   $ 0.63  

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