Capital Senior Living Corporation Reports Fourth Quarter and Full Year 2012 Results; Fourth Quarter

Capital Senior Living Corporation Reports Fourth Quarter and Full Year 2012 Results; Fourth Quarter CFFO Increases 56% to $0.49 Per Share

DALLAS--(BUSINESS WIRE)-- Capital Senior Living Corporation (the "Company") (NYS: CSU) , one of the country's largest operators of senior living communities, today announced operating results for the fourth quarter and full year 2012. Company highlights for the fourth quarter and full year include:


Fourth Quarter Highlights

  • Adjusted Cash From Facility Operations ("CFFO") increased 56.3% to $13.5 million, or $0.49 per share in the fourth quarter of 2012, an increase of $0.17 per share from the fourth quarter of 2011. Tax savings from a cost segregation study enhanced CFFO by approximately $0.09 per share in the quarter.
  • Adjusted EBITDAR increased 14.8% to $29.2 million in the fourth quarter of 2012, an increase of $3.8 million from the fourth quarter of 2011. EBITDAR margin was 35.1% in the fourth quarter of 2012.
  • Revenue increased 17.0% to $83.3 million in the fourth quarter of 2012, an increase of $12.1 million from the fourth quarter of 2011.
  • Average monthly rent for the consolidated communities increased 3.2% to $3,002 per occupied unit in the fourth quarter of 2012, an increase of $94 per occupied unit from the fourth quarter of 2011.
  • Same-community occupancies increased 180 basis points from the fourth quarter of 2011 and 80 basis points from the third quarter of 2012.
  • The Company completed the acquisition of 10 senior living communities in the fourth quarter for a combined purchase price of approximately $105.7 million, increasing the Company's owned portfolio to 48 communities.
  • Subsequent to the end of the fourth quarter, the Company is completing the acquisition of an additional senior living community for a purchase price of approximately $6.7 million.

Full Year Highlights

  • Adjusted CFFO increased 45.8% to $37.3 million, or $1.37 per share in 2012, an increase of $0.42 per share from 2011.
  • Adjusted EBITDAR increased 19.1% to $110.0 million in 2012, an increase of $17.7 million from 2011. EBITDAR margin improved to 35.4% from 35.0% in the prior year.
  • Revenue increased 17.9% to $310.5 million in 2012, an increase of $47.0 million from 2011.
  • The Company completed the acquisition of 17 high quality senior living communities for a combined purchase price of $181.3 million. These 17 communities are expected to generate incremental annual CFFO of approximately $0.34 per share.

"We are very pleased to report continued occupancy growth and strong results from the successful implementation of our strategic plan that is focused on operations, marketing and accretive growth to enhance shareholder value," said Lawrence A. Cohen, Chief Executive Officer of the Company. "CFFO of $1.37 per share was 46% higher and EBITDAR margin improved 40 basis points from the prior year. Fourth quarter same-community occupancies increased 180 basis points from the comparable quarter of the prior year and 80 basis points sequentially. We differentiate Capital Senior Living 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, limited new supply and an improving housing market. These strong fundamentals are further enhanced by our disciplined and strategic acquisition program that increases our ownership of high-quality senior living communities in geographically concentrated regions, generating meaningful increases in CFFO, earnings and real estate value."

Recent Investment Activity

  • In the fourth quarter, the Company completed the acquisition of 10 senior living communities for a combined purchase price of approximately $105.7 million. These communities are located in Texas, Indiana, Ohio and Missouri, enhancing the Company's geographic concentration in these states. Highlights of these transactions include:
    • Additional CFFO of $5.4 million, or $0.20 per share.
    • Incremental earnings of $3.2 million, or $0.12 per share.
    • Increases annual revenue by $29.6 million.
    • Average occupancy above 95%.
    • Average monthly rents are approximately $3,200.

These ten communities were financed with approximately $74.7 million of non-recourse mortgage debt consisting of approximately $59.9 million of 10-year debt with a fixed interest rate of 4.38%; approximately $3.2 million of assumed debt with a fixed interest rate of 4.48% and remaining maturity of 33 years; and approximately $11.6 million of bridge financing. The Company has received a commitment for a 10-year fixed rate non-recourse refinancing of this bridge loan. The blended average interest rate on the $74.7 million of debt is approximately 4.44%.

  • Subsequent to the end of the fourth quarter, the Company is completing the acquisition of a senior living community in Nebraska for a purchase price of approximately $6.7 million. Highlights of this transaction include:
    • Additional CFFO of $0.3 million, or $0.01 per share.
    • Incremental earnings of $0.2 million, or $0.01 per share.
    • Increases annual revenue by $2.6 million.
    • Average occupancy 91%.
    • Average monthly rents are approximately $3,500.

This community will be financed with approximately $4.0 million of 10-year fixed rate debt that is non-recourse to the Company with an interest rate of 4.66%.

  • 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 second quarter of 2013.

Quarterly Financial Results

For the fourth quarter of 2012, the Company reported revenue of $83.3 million, compared to revenue of $71.2 million in the fourth quarter of 2011. Resident and healthcare revenue increased from the fourth quarter of the prior year by approximately $11.9 million, or 17.0%, largely as a result of acquiring 17 communities in the last twelve months. The number of consolidated communities increased from 81 in the fourth quarter of 2011 to 98 in the fourth quarter of 2012.

Average monthly rent for the consolidated communities was $3,002 per occupied unit in the fourth quarter of 2012, an increase of $94, or 3.2%, over the fourth quarter of 2011. Financial occupancy of the consolidated portfolio averaged 87.2% in the fourth quarter of 2012, 110 basis points higher than the third quarter of 2012 and 160 basis points higher than the fourth quarter of 2011.

As a percentage of resident and healthcare revenue, operating expenses were 59.6% in the fourth quarter of 2012. Operating expenses for the fourth quarter of 2012 were $48.7 million, an increase of $7.1 million from the fourth quarter of 2011, primarily due to 17 additional communities now being consolidated.

General and administrative expenses as a percentage of revenues under management were 4.9% for the quarter, excluding transaction costs incurred by the Company. Transaction costs for the quarter were approximately $0.7 million. In addition, general and administrative expenses in the fourth quarter of 2012 reflect approximately $0.6 million of accrued bonus expense due to the achievement of certain performance-based incentive goals.

Adjusted EBITDAR for the fourth quarter of 2012 was approximately $29.2 million, an increase of $3.8 million, or 14.8% from the fourth quarter of 2011. Adjusted EBITDAR margin was 35.1% for the period. If the additional performance-based incentive bonuses had been accrued over the entire year, EBITDAR margin in the fourth quarter of 2012 would have been 35.6%. Adjusted net income for the fourth quarter of 2012 was $1.9 million, or $0.07 per share, excluding non-recurring or non-economic items reconciled on the final page of this release.

Adjusted CFFO was $13.5 million, or $0.49 per share in the fourth quarter of 2012. Adjusted CFFO exceeded the fourth quarter of 2011 by $4.9 million, or $0.17 per share. In the most recent quarter, the Company initiated a tax consulting engagement to assist in reviewing the classification of costs incurred for the purchase and improvements to its owned and leased portfolio. The purpose of this study was to determine which costs may qualify for shorter depreciable lives for federal income tax purposes. The preliminary findings of this cost segregation study indicated that the Company could increase its depreciation expense for tax purposes by approximately $6.1 million in the fourth quarter of 2012, saving approximately $2.4 million of taxes and increasing CFFO by approximately $0.09 per share. The Company expects to realize additional tax benefits from this cost segregation study of approximately $0.05 per share in each quarter of 2013. Without this tax benefit, CFFO in the fourth quarter of 2012 would have been approximately $11.0 million, or $0.40 per share.

Adjusted CFFO in the fourth quarter of 2011 benefited from approximately $4.0 million of bonus depreciation pursuant to The Tax Relief, Unemployment Insurance and Job Creation Act that was passed late last year. Tax savings of $1.8 million resulting from this bonus depreciation added approximately $0.07 per share to CFFO in the fourth quarter of 2011.

Excluding tax benefits in both quarters, CFFO increased from $0.25 per share in the fourth quarter of 2011 to $0.40 per share in the fourth quarter of 2012, an increase of approximately 60%.

Annual Financial Results

The Company reported 2012 revenue of $310.5 million compared to revenue of $263.5 million in 2011, an increase of $47.0 million or 17.8%.

Operating expenses for 2012 were $182.3 million, or 60.0% of resident and healthcare revenue. Operating margins improved 10 basis points from the prior year.

General and administrative expenses in 2012 were $16.1 million, approximately $2.9 million higher than in 2011. Of the $2.9 million increase, approximately $0.5 million was due to higher transaction costs and the remainder was largely attributable to professional fees and payroll and benefit costs to support growth, along with additional bonus expense due to the achievement of certain performance-based incentive goals. Excluding transaction costs, general and administrative expenses as a percentage of revenues under management were 4.5% in 2012.

Adjusted EBITDAR was $110.0 million in 2012 compared to $92.3 million in 2011. Adjusted EBITDAR margin of 35.4% in 2012 improved 40 basis points from the prior year. Adjusted net income in 2012 was $7.7 million, or $0.28 per share, compared to adjusted net income of $6.9 million, or $0.25 per share in 2011. CFFO was $37.3 million, or $1.37 per share in 2012, an increase of $11.7 million, or $0.42 per share from 2011.

Operating Activities

At communities under management, excluding one community that had a recent conversion, same-community revenue in the fourth quarter of 2012 increased 4.2% versus the fourth quarter of 2011. Same-community expenses increased 2.8% and net income increased 6.2% from the fourth quarter of the prior year.

Same-community occupancies were 180 basis points higher than the fourth quarter of 2011 and 80 basis points higher than the third quarter of 2012. Same-community occupancy in the fourth quarter reflected occupancy gains in independent living exceeding those in higher levels of care, resulting in average rents 2.1% higher than the fourth quarter of 2011 and equal to last quarter.

Capital expenditures for the fourth quarter of 2012 were approximately $3.2 million, representing $1.9 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 2012 with $28.9 million of cash and cash equivalents, including restricted cash. During the year, approximately $51.8 million of cash was invested as equity in the acquisition of 17 senior living communities. As of December 31, 2012, the Company financed its 48 owned communities with mortgages totaling $360.9 million with a blended average interest rate of 5.25%. Except for one bridge loan that will be replaced with permanent financing in the first quarter of 2013, all of the Company's mortgage debt was at fixed interest rates with no loan maturities before the third quarter of 2015.

Q4 2012 Conference Call Information

The Company will host a conference call with senior management to discuss the Company's fourth quarter and full year 2012 financial results. The call will be held on Thursday, March 7, 2013 at 11:00 a.m. Eastern Time. The call-in number is 913-312-0953, confirmation code 1080434. 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 March 7, 2013 at 2:00 p.m. Eastern Time, until March 16, 2013 at 2:00 p.m. Eastern Time. To access the conference call replay, call 719-457-0820, confirmation code 1080434. The conference call will also be made available for playback via the Company's corporate website, www.capitalsenior.com, beginning March 8, 2013.

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 101 senior living communities in geographically concentrated regions with an aggregate capacity of approximately 13,600 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.

Contact Ralph A. Beattie, Chief Financial Officer, at 972-770-5600 for more information.

     
 
CAPITAL SENIOR LIVING CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands)
 
December 31, December 31,
2012 2011
 
ASSETS
Current assets:
Cash and cash equivalents $ 18,737 $ 22,283
Restricted cash 10,179 9,102
Accounts receivable, net 5,229 4,526
Accounts receivable from affiliates 753 708
Federal and state income taxes receivable 3,901 5,438
Deferred taxes 1,443 1,479
Property tax and insurance deposits 11,442 11,395
Prepaid expenses and other   4,758     6,068  
Total current assets 56,442 60,999
Property and equipment, net 527,159 365,459
Deferred taxes 9,350 5,782
Investments in unconsolidated joint ventures 1,074 1,070
Other assets, net   42,917     29,016  
Total assets $ 636,942   $ 462,326  
 
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 6,978 $ 2,297
Accounts payable to affiliates 2 314
Accrued expenses 24,445 19,086
Current portion of notes payable 20,230 8,196
Current portion of deferred income 8,193 8,740
Current portion of capital lease and financing obligations 766 50
Customer deposits   1,540     1,530  
Total current liabilities 62,154 40,213
Deferred income 19,990 26,175
Capital lease and financing obligations, net of current portion 42,146 31
Other long-term liabilities 1,692 1,826
Notes payable, net of current portion 342,366 224,940
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 27,699 and 27,083 in 2012 and 2011, respectively 286 280
Additional paid-in capital 137,867 135,301
Retained earnings 31,375 34,494
Treasury stock, at cost - 350 shares in 2012 and 2011   (934 )   (934 )
Total shareholders' equity   168,594     169,141  
Total liabilities and shareholders' equity $ 636,942   $ 462,326  

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

December 31,

Year Ended

December 31,

2012   2011 2012   2011
Revenues:
Resident and health care revenue $ 81,687 $ 69,811 $ 304,848 $ 256,584
Affiliated management services revenue 182 145 674 883
Community reimbursement revenue   1,409     1,196     5,014     6,035  
Total revenues 83,278 71,152 310,536 263,502
Expenses:
Operating expenses (exclusive of facility lease expense and depreciation and amortization expense shown below)

48,651

41,545

182,286

154,042

General and administrative expenses 5,191 3,641 16,114 13,198
Facility lease expense 13,965 13,466 55,144 52,233
Stock-based compensation expense 601 477 2,444 1,497
Provision for bad debts 198 70 749 287
Depreciation and amortization 10,160 6,383 35,130 18,299
Community reimbursement expense   1,409     1,196     5,014     6,035  
Total expenses   80,175     66,778     296,881     245,591  
Income from operations 3,103 4,374 13,655 17,911
Other income (expense):
Interest income 17 20 453 102
Interest expense (5,323 ) (3,471 ) (18,022 ) (11,900 )
(Loss) Gain on disposition of assets, net (10 ) (19 ) 171
Equity in (losses) earnings of unconsolidated joint ventures   24     (141 )   (217 )   (760 )
(Loss) Income before benefit (provision) for income taxes (2,179 ) 772 (4,150 ) 5,524
Benefit (Provision) for income taxes   538     (426 )   1,031     (2,499 )
Net (loss) income $ (1,641 ) $ 346   $ (3,119 ) $ 3,025  
Per share data:
Basic net (loss) income per share $ (0.06 ) $ 0.01   $ (0.11 ) $ 0.11  
Diluted net (loss) income per share $ (0.06 ) $ 0.01   $ (0.11 ) $ 0.11  
Weighted average shares outstanding — basic   27,403     27,066
TWX -0.34 80.59

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